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AfricAn Development BAnk Group

African fixed income and Derivatives Guidebook African Fixed Income and Derivatives Guidebook ETB

LO E DE D EVE PME AIN EV D N IC EL N T R O A F F P IC U P A R N E F D E M A U E Q N N

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AfricAn Development BAnk Group

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Contact: Group Treasurer Tel: +216 7110 2028 Fax: +216 71 33 0632 mAY E-mail: [email protected] 2010 mAY 2010 Website: www.afdb.org African Fixed Income and Derivatives Guidebook Table of Contents iii

Table of Contents

List of Abbreviations ���������������������������������� iv Madagascar �������������������������������������������������������������������89 Malawi �������������������������������������������������������������������������93 Foreword ����������������������������������������������������� vii Mauritania ���������������������������������������������������������������������97 Mauritius ���������������������������������������������������������������������101 Acknowledgements ����������������������������������viii Morocco ���������������������������������������������������������������������107 Mozambique ���������������������������������������������������������������113 Country Guides ����������������������������������������������1 Namibia �����������������������������������������������������������������������117 Nigeria �������������������������������������������������������������������������121 Algeria �����������������������������������������������������������������������������3 Angola �����������������������������������������������������������������������������7 Rwanda �����������������������������������������������������������������������127

Botswana �����������������������������������������������������������������������11 Sao Tome e Principe ���������������������������������������������������131 Burundi �������������������������������������������������������������������������17 Seychelles �������������������������������������������������������������������133 Sierra Leone ���������������������������������������������������������������137 Cape Verde �������������������������������������������������������������������21 Somalia �����������������������������������������������������������������������141 Central Africa Economic and Monetary Community �24 South Africa ���������������������������������������������������������������145 Comoros �����������������������������������������������������������������������31 Sudan �������������������������������������������������������������������������153 Swaziland �������������������������������������������������������������������157 Democratic Republic of Congo �������������������������������������35 Djibouti �������������������������������������������������������������������������39 Tanzania ���������������������������������������������������������������������161 Tunisia �������������������������������������������������������������������������167 Egypt �����������������������������������������������������������������������������43 Eritrea ���������������������������������������������������������������������������49 Uganda �����������������������������������������������������������������������173 Ethiopia �������������������������������������������������������������������������53 West African Economic and Monetary Union �����������178 The Gambia �������������������������������������������������������������������76 Ghana ���������������������������������������������������������������������������61 Zambia �����������������������������������������������������������������������183 Guinea ���������������������������������������������������������������������������67 Zimbabwe �������������������������������������������������������������������189

Kenya ���������������������������������������������������������������������������71

Lesotho �������������������������������������������������������������������������77 Liberia ���������������������������������������������������������������������������81 Libya �����������������������������������������������������������������������������85 iv List of Abbreviations

List of Abbreviations

ADB Asian Development Bank CEMAC Communauté Économique et Monétaire de ADF African Development Fund l’Afrique Centrale AfDB African Development Bank CFA Franc de la Communauté Financière de AGOA African Growth and Opportunity Act l’Afrique ALBI All Bond Index CIC Central Bank Igarah Certificate AOA Angola Kwanza CIMA Conférence Internationale des Marches d’As- APSB Association Professionnelle des Sociétés de surance Bourses CIPRES Conférence Interafricaine de la Prevoyance ATS Automatic Trading System Sociale Avg Average CMA Common Monetary Area BAI British American Insurance CMC Council of Money and Credit BCC Banque Centrale du Congo CIMA Conférence Internationale des Marches d’As- BCEAO Banque Centrale des États de l’Afrique de surance l’Ouest CNAS Caisse Nationale d’Assurance Sociale BCM Banque Centrale de Madagascar CNR Caisse Nationale des Retraites BCV Banco de Cabo Verde COBAC Commission Bancaire de l’Afrique Centrale BDM Banco de Mozambique COMESA Common Market of Eastern and Southern BEAC Banque des Etats de l’Afrique Centrale Africa BESA Bond Exchange of South Africa COSOB Commission d’Organisation et de Surveillance BIF Burundi Franc des Opérations de Bourse bn Billion COSUMAF Commission de Surveillance du Marché Fin- BNA Banco Nacional de Angola ancier de l’Afrique Centrale BoA Bank of Algeria CP Commercial Paper BOAD Banque Ouest Africaine de Développement CPI Consumer Price Index BoB Bank of Botswana CREPMF Conseil Régional de l’Epargne Publique et des BoBC Bank of Botswana Certificate Marchés Financiers BOG Bank of Ghana CSD Central Securities Depository BOS Bank of Sudan CSE Casablanca Stock Exchange BOT Bank of Tanzania CVE Cape Verde Escudo BOU Bank of Uganda DAA Deposit Auction Arrangement BOZ Bank of Zambia DAP Delivery Against Payment BPS Basis Points DC/BR Dépositaire Central/Banque de Règlement BRB Banque de la Republique du Burundi DFI Development Finance Institution BRVM Bourse Régionale des Valeurs Mobilières DJF Djibouti Franc BSE Botswana Stock Exchange DOT Algerian Direction of Trade BTA Bons du Trésor Assimilables DPCF Debt Participation Capital Fund BTC Bons du Trésor Cessibles DRC Democratic Republic of Congo BVM Bolsa de Valores de Mozambique DSE Dar es Salaam Stock Exchange BVMAC Bourse des Valeurs Mobilières d’Afrique Cen- DVP Delivery Versus Payment trale DZD Algerian Dinar BWP Botswana Pula EASRA East African Securities Regulatory Authorities CAD Cash Against Delivery EGP Egyptian Pound CAR Central African Republic EIB European Investment Bank CASE Cairo and Alexandria Stock Exchange EPZ Export Processing Zone CBB Central Bank Bills ERN Eritrean Nakfa CBG Central Bank of Gambia ESAF Enhanced Structural Adjustment Facility CBN Central Bank of Nigeria ETB Ethiopian Birr CBK Central Bank of Kenya EUR Euro CD Certificate of Deposit EURIBOR Euro Interbank Offered Rate CDF Congolese Franc FDI Foreign Direct Investment FGN Federal Government of Nigeria List of Abbreviations v

FI Financial Institution NAICOM National Insurance Commission FMC Financial Markets Commission NBE National Bank of Ethiopia FMO The Netherlands Development Finance Com- NBFIRA Non-Bank Financial Institutions Authority pany NCDS Negotiable Certificate of deposit FRA Forward Rate Agreement NDF Non-Deliverable Forward FSC Financial Services Commission NGN Nigerian Naira FSRCC Financial Services Regulation Coordination NGO Non-Governmental Organization Committee NIBOR Nigerian Interbank Offered Rate FTA Free Trade Agreement NSE Nairobi Stock Exchange FX Foreign Exchange NSX Namibian Stock Exchange GBOT Global Board of Trade Ltd NT National Treasury GDP Gross Domestic Product OHADA L’Organisation pour l’Harmonisation en Af- GHS Ghanaian Cedi rique du Droit des Affaires GNF Guinean Franc OMO Open Market Operations GoK Government of Kenya OTC Over-The-Counter GOVI Government Bond Index OTS Off-shore Trade Settlement HDI Human Development Index OTHI Other Bond Index HIPC Heavily Indebted Poor Country PIBO Public Infrastructure Bond Offer IDA International Development Association PRGF Poverty Reduction and Growth Facility IDB Inter-Dealer Broker RAP Receipt Against Payment IFC International Finance Corporation RBZ Reserve Bank of Zimbabwe IMF International Monetary Fund RMC Regional Member Country IPO Initial Public Offering RTGS Real Time Gross Settlement IRS Internally Registered Stock RWF Rwandan Franc ISIN International Securities Identification Number SAFEX South African Futures Exchange JIBAR Johannesburg Interbank Agreed Rate SARB South African Reserve Bank JPY Japanese Yen SCR Seychelles Rupee JSE Johannesburg Stock Exchange SDD Sudanese Dinar KES Kenyan Shilling SDR Special Drawing Right KfW Kreditanstalt für Wiederaufbau SGI Sociétés de Gestion et d’Intermédiation KIBOR Kampala Interbank Offered Rate SGVB Société de Gestion de la Bourse des Valeurs LIBOR London Interbank Offered Rate SIBA Seychelles International Business Authority LLDC Landlocked Developing Country SICIL Sistema Integrado de Compensacao Inter- LRD Liberian Dollar bancaria e de Liquidacao LSL Lesotho Loti SICOM State Insurance Company of Mauritius LuSE Lusaka Stock Exchange SIDS Small Island Developing State LYD Libyan Dinar SIV Structured Investment Vehicle MACSS Mauritius Automated Clearing and Settlement SLL Sierra Leonean Leone System SME Small and Medium Enterprises MAD Moroccan Dirham SOS Somali Shilling MAIBOR Maputo Interbank Offered Rate SRO Self-Regulatory Organization MDB Multilateral Development Bank SSX Swaziland Stock Exchange MDRI Multilateral Debt Relief Initiative STD Sao Tome e Principe Dobra MGA Malagasy Ariary STRIPS Separate Trading of Registered Interest and MMIS Money Market Internet System Principal of Securities mn Millions SVT Spécialistes en Valeur de Trésor MPC Monetary Policy Committee SZL Swaziland Lilangeni MRO Mauritanian Ouguiya T-bill Treasury Bill MUR Mauritian Rupee TBC Titulos do Banco Central MWK Malawi Kwacha TCMF Titulos Consolidatos de Mobilisação Finan- MZM Mozambique Metical ciera vi List of Abbreviations

TND Tunisian Dinar TZS Tanzanian Shilling UEMOA Union Économique et Monétaire Ouest Af- ricaine UGX Uganda Shilling UN United Nations USD United States Dollar USE Uganda Stock Exchange WAEMU West African Economic and Monetary Union WAIR Weighted Average Interbank Rate WAMU West African Monetary Union WATBR Weighted Average Treasury Bills Rate XAF CFA Franc (Central African Region) XOF CFA Franc (West African Region) ZIPSS Zambian Inter-bank Payment and Settlement System ZMK Zambian Kwacha ZWD Zimbabwe Dollar Foreword vii

Foreword

It gives us great pleasure to present the second edition of the African Fixed Income and Derivatives Guidebook, one of several initiatives undertaken by the African Development Bank to disseminate information on developments in African financial markets.

Three years after the first edition and in the aftermath of the worst global economic and financial crisis in decades, we are pleased to report on the status of the African debt capital markets.

We believe this publication captures the features of the debt money and capital markets that are of most interest to investors, issuers, policy makers, other capital market participants, academics and researchers. It surveys the develop- ment of existing infrastructure in fixed income, foreign exchange and derivatives markets, where applicable. It also provides key information on market participation of domestic and international players and an overview of the current tax policy relating to fixed income instruments.

There are a number of positive observations that this edition brings to light as compared to the first edition published in May 2007. Treasury yield curves have been extended from bills into medium and long-term bonds, issuance sizes have increased, investments have been made in settlement and clearing infrastructure and Delivery Versus Payment has been achieved in many markets. The investor base has increased in diversity from dominance of the banking sec- tor to non-bank investors, liquidity in the secondary market for government securities has continued to improve, and regulations remain largely supportive of the participation of foreign investors in local markets.

We are confident that the domestic money and capital markets will play a greater role in the mobilization of resources and financing of infrastructure and other socially desirable projects in Africa. Indeed, pre-crisis levels of GDP growth made it imperative that domestic financial markets become the source of preferred financing for long-term projects. The corporate issuance category of the primary market has perhaps the biggest potential for growth in the coming years. Commercial paper and corporate bond issues continue to grow, thereby increasing asset diversity and market depth. These have been well supported by improved liquidity in the government securities markets as pricing benchmarks. Innovative transactions such as infrastructure bonds and issues by public-private-partnerships entities have been use- ful in financing infrastructure projects.

Several markets reported a rise in yields and depreciation of local currencies during the peak of the global financial crisis as investors reduced their exposure to Africa. A recent gradual return to the African markets has been reported. This further demonstrates that African markets have developed and continue to promote an environment conducive to foreign investor participation. These flows will complement the domestic savings required to deliver the necessary capital to finance Africa‘s huge funding requirements.

The information provided in this guidebook is compiled by the African Development Bank in collaboration with several organizations including Central Banks, Ministries of Finance, Stock Exchanges, and financial institutions active on the continent without which contribution this publication would not have been possible.

Thierry de Longuemar Pierre Van Peteghem Vice President, Finance Group Treasurer viii Overview

Overview

This guidebook is intended to provide a first window into each African fixed income market and covers the corner- stones that are often analyzed by investors, policy makers, academics and researchers. This publication reviews all the 53 African markets with the West Africa Economic and Monetary Union (WAEMU) and the Central Africa Economic and Monetary Community (CEMAC) regions each represented as single markets. For each market, we discuss the pillars that support the development of deep and vibrant debt capital markets. These include: the monetary policy framework and efficiency of the money market, a sustainable Government debt issuance and management program, a variety of market intermediaries, a broad spectrum of investor classes, as well as market infrastructure that includes prudent regulation and efficient clearing and settlement systems.

Monetary Policy and Money Market Fixed income markets traditionally get their roots from the monetary policy framework and the money market. The overriding distinction of fixed income assets is their fixed return to investment for specified interest periods. As a consequence, investors in these assets look at, amongst others, the monetary policy framework in order to take a view on the required nominal return since the real value of return is very dependent on the rate of inflation in the currency of denomination. To the extent that inflation is a monetary phenomenon, the monetary policy framework will be critical to the real return of a fixed income asset.

The money market provides the basis for maturity transformation that facilitates investment in long-term assets by enabling investors in long-term securities to cover short-term liquidity needs. The African markets with the most liquid interbank and money markets in general have more investors funding trading portfolios through the Repo markets. This greatly enhances the efficiency of the long-term securities pricing and trading.

Government securities and Non-Government securities A fixed income asset is an investment that regularly generates a fixed amount of interest for a specific period of time. These assets take various forms and include bills, bonds, certificates of deposit, preferred stock, and debentures. The issuance of fixed income securities is often dominated by the Government starting off with short-term discount Treasury bills that are later rolled into longer-term coupon bearing Treasury bonds as the market becomes more comfortable with holding and pricing longer-term securities. Corporate issuers begin to benchmark their paper on government securities. These initial instruments are usually plain vanilla bills and bonds that gradually become more sophisticated from bullet maturities to straight line, step-up and step-down amortization structures, inflation linked securities whose principal values change with an inflation tracking index, and other more sophisticated instruments that include derivatives like money market and bond futures and options on futures. The development of interest rate and cross currency derivatives underpins the provision of hedging tools to market participants. The diversity of instruments is important for investors to select securities that precisely fit their asset requirements while giving access to issuers the structures that best suit their funding requirements.

Intermediaries The majority of fixed income markets typically start with issuances of Government securities directly sold to all inves- tors, institutional and retail, that tend to buy and hold until maturity. In a bid to improve liquidity, Primary Dealers are appointed as a select group of authorized institutions with direct access to the primary market for Government securities. The Primary Dealers may place bids on behalf of investors in the primary market and provide liquidity in the secondary market. Our observation is that requirements from these dealers vary greatly from market to market. Algeria, Ghana, Nigeria, South Africa, Tanzania and Tunisia are a few of the countries with Primary Dealer systems. Other markets opted to improve liquidity by listing Government securities on the Stock Exchange. This introduced the broker community as intermediaries into bond trading in addition to their regular stock trading. Kenya and Zambia markets require trades to be executed through the Stock Exchange.

A continuum of models falls in-between the two extremes ranging from Over-the-Counter (OTC) systems where deal- ers call each other and transact directly without involvement of brokers and the alternative end where all trades are executed by brokers on a Stock Exchange. In markets where traders have had the option to trade OTC or on-exchange they have generally favored the OTC market. Overview ix

As depth in the market continues to grow and transaction sizes get bigger, the need for anonymity increases and so does the need for brokers with the balance sheet to take positions. Some markets have licensed inter-dealer brokers that arrange larger transactions between dealers. Discount houses that buy securities from willing sellers for their own account have also developed in a few markets to benefit from any market inefficiencies. Pre-trade and post-trade price transparency in bond markets has tended to lag that of equity markets. Nevertheless investors can find indica- tive prices to transact at or mark-to-market their portfolios from Stock Exchanges and Central Bank websites. Initially, Government securities yield curves have been based on primary market prices. Many markets are gradually moving to secondary market pricing as liquidity improves and benchmarks develop.

Many markets opened by issuing securities at the short end to finance Government expenditure and/or as monetary policy instruments. The captive and perhaps most relevant investor base was the commercial banking sector with over 80% holdings of outstanding Government issues. Developments in the non-bank financial sectors, pension sector, foreign investor appetite, and collective investment schemes as well as increased issuance of longer-term securities have broadened the diversity in holdings for all securities. Currently, the more liquid markets in Africa have lower commercial bank holding of their outstanding securities than do the less liquid markets. The diversity of the inves- tor base is critical in ensuring liquidity in times when one category of investors is exiting or entering the market in a short period of time.

Market Infrastructure Regulation should be cognizant of the level of development of the market. Overbearing regulation in nascent markets can stifle development while at the same time insufficient regulation can destroy it. The guidebook covers institutions that determine rules and regulations around the issuance of government and corporate securities. Equally important are the regulators that determine allowable investment limits for different asset classes. These have a strong bearing on asset allocation in the market.

The clearing and settlement systems are vital for efficient trading but can be costly especially if the transaction volumes are small. In nascent markets, script has typically been physical paper that eventually gets transformed to demate- rialized electronic bookkeeping. The settlement systems also undergo transformation to electronic Real-Time Gross Settlement systems for larger size transactions. With this comes the connection of the payment system to the Central Securities Depository thereby enhancing delivery versus payment processes.

Policy Factors Tax policy is a key determinant of investment return. Income tax, withholding tax and capital gains tax may apply in some markets. Different tax rates may apply to resident and non-resident investors. Markets may also have bilateral tax treaties that would be of benefit to foreign investors. Taxes may be collected at issue, maturity or when secondary market trading occurs. These distinctions all have return implications to investors. Foreign investors will be keen to learn how the foreign exchange rate is determined. This includes market determined rates reflecting demand and supply or other regimes with varying influence from monetary authorities. This can have implications on the need to hedge foreign exchange risks and/or determine the appropriate return to compensate for this risk. Where possible, foreign exchange market turnover is highlighted as an indication of the market depth. Information on foreign exchange controls is also provided in order to improve awareness of processes that should be considered before funds can be invested and externalized. The convertibility of the local currency is critical to exter- nalizing investment returns and principal.

We hope that this guidebook will provide valuable insights into African debt capital markets. Additional information can be obtained from the capital markets regulators and sovereign issuers in each market, whose contact details have been included in this guidebook. x Acknowledgements

Acknowledgements

This Guidebook is a product of the staff of the Treasury Department of the African Development Bank, under the guid- ance of the Treasurer, Pierre Van Peteghem. The book could not have been completed without the kind cooperation and valuable contributions from a variety of individuals and institutions. These include: Central Banks, Ministries of Finance, Stock Exchanges and the financial institutions listed below that made specific contributions to this guide- book. We also acknowledge making use of economic and financial reports from other listed organizations and sources. We would like to express our sincere appreciation and acknowledgement to the Bank’s Management and staff for their input. We are grateful to the Bank’s Country Economists and Operations and Finance Experts for their valuable advice and input throughout the process. In particular, we wish to thank the dedicated team from the Financial Technical Services Division of the Treasury Department under the leadership of its Manager, Marie-Laure Akin Olugbade, com- prising Stephen Mulema (Task Manager), Boutheyna Bekri, Olivier Eweck, Joana Queiroz, Richard Ofori Mante and Sylvestre Tape, who drafted and edited this publication.

The findings, interpretations and conclusions expressed in this volume are entirely those of the authors and should not be attributed in any manner to the Management or members of the Board of Directors of the African Development Bank or the Governments they represent. While proper care has been taken in the compilation of the book, the African Development Bank neither guarantees the accuracy of the data included in this publication nor accepts responsibility for any consequence of their use.

Dissemination of this publication is encouraged and the African Development Bank will normally grant permission promptly.

The Bank would like to extend its appreciation to the following individuals at the institutions listed below:

Randolph Oosthuizen, Head of Research, African Alliance, Lesotho, Namibia, Rwanda, Tanzania and Uganda

Glenn Wepener, Head of sales, MENA Fx, Credit Agricole CIB Algeria, Egypt, Morocco and Tunisia

Leon Myburgh, Strategy and Research for Sub-Saharan Africa Fixed Income, Currencies and Commodities Egypt, Kenya, Nigeria, Tanzania, Uganda, Zambia, West African Economic and Monetary Union Acknowledgements Acknowledgements xi

Taiwo Okeowo, Executive Director, FBN Capital Markets. Nigeria and Ghana

Phumulele Mbiyo, Global Markets Research, Standard Bank Botswana, Egypt, Ghana, Mauritius, Mozambique, South Africa, Tanzania and Uganda

Ade Adebajo, Director Fixed Income, Standard Chartered Bank Egypt, Ghana, Nigeria, Tanzania, Sierra Leone, Uganda, Zambia, West African Economic and Monetary Union

»» African Economic Outlook, AfDB/OECD, 2009 »» Bloomberg »» Economics Intelligence Unit (EIU) »» Encyclopedia of the Nations (http://www.nationsencyclopedia.com/Africa/) »» First Initiative (http://www.firstinitiative.org/Projects/index.cfm) »» Fitch Ratings »» IMF Country Reports, Letters of Intent, Article IV Consultations (http://www.imf.org) »» Moody’s ratings »» Sound Practice in Government Debt Management, Graeme Wheeler, World Bank, 2004 »» Standard Bank of South Africa – Economics Division (http://www.ed.standardbank.co.za/srchResearch.asp) »» Standard Chartered Bank – Fixed Income & Rates Strategy Focus (http://research.standardchartered.com) Country Guides Algeria

IBERIAN PENINSULA MEDITERRANEAN SEA 2009 at a glance Algiers Tunis Quacentina ATLANTIC OCEAN Wahran Population (mn) 34.9 Rabat Fès Casablanca Population growth (annual %) 1.7 MOROCCO TUNISIA Ghardaïa Official language French Marrakech Currency Algerian Dinar (DZD) ALGERIA GDP (Current US$ bn) 133.2 Adrar

GDP growth (annual %) 1.7 LIBYA GDP per capita 3,815.7 External Debt (US$ bn) 3.7 Tamenghest External Debt/GDP (%) 2.8

CPI 3.8 MAURITANIA NIGER MALI Exports of Goods and services (% of GDP) 41.9 Gross Official Reserves (in US$ bn) 141.9 Gross Official Reserves (in months of imports) 35.7 DZD / 1 USD (Year end) 71.91

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» The Government securities yield curve longest tenor is 15 years, with nine benchmark points. »» A growing diversified investor base with marginal presence of foreign investors. »» Bi-monthly auction of Treasury bills and bonds. »» Reuters codes for market data: • Reuters: BA/FX01 4 Algeria

Monetary Policy and Money Market

Monetary Policy 10 billion, and from DZD 0.5 billion to DZD 3.5 billion The mission of the Central Bank of Algeria (BoA) is to for non-bank financial institutions. create and maintain conditions that are most conducive to The CMC meets each month to review the implementa- rapid development of the economy in the areas of money tion of monetary policy and releases a communique of supply, credit and foreign exchange, while ensuring the its outcomes. stability of domestic price and external value of the cur- rency. The Council of Money and Credit (CMC) formulates Money Market monetary policy. The BoA implements monetary policy The main component of the Algerian money market is through various instruments including credit and discount the Treasury bills market. The benchmark rates are the operations, minimum reserve requirements, open market average interbank rate and the deposit facility interest rate. operations, and standby facilities.

In December 2008, the CMC increased the minimum capital requirement of banks from DZD 2.5 billion to DZD

Fixed income market Government Securities Domestic debt instruments mainly include Treasury bills The following graph illustrates changes in the Govern- and bonds (82% of outstanding government debt). Treasury ment yield curve from December 2008 to December 2009. bills, also called Bons du Trésor Cessibles (BTC), are issued Government securities yield curve as at 31 with maturities ranging from 3 to 6 months. Treasury December 2009, 30 June 2009, and 31 December bonds are issued with maturities of 1 to 15 years. Treasury 2008

bonds with a tenor of 1 to 5 years are Bons du Tresor As- 5% similables (BTA), while Obligations Assimilables du Tresor (OAT) have tenors of 7 to 15 years. Other Government- 4% issued instruments are Caisse Nationale des Retraites (CNR) bonds and Caisse Nationale d’Assurance Sociale 3% (CNAS) bonds. Issuance of these securities, organized 2% regularly by the Treasury, is accomplished through Dutch auctions. All Government Treassury bills and bonds are 1% dematerialized. The day-count is 360 for Treasury bills, and 365 for bonds. 0% 3-m 6-m 1-y 2-y 3-y 5-y 7-y 10-y 15-y 31-Dec-08 30-Jun-09 31-Dec-09 The details of Government debt issuance are summarized in the table below: Source: Central Bank of Algeria

Auction details Non-Government Securities T-bills T-bonds Non-Government securities are issued occasionally, based on issuers’ financing needs and market liquidity. Auction frequency Twice a month Twice a month

Auction method Dutch Dutch Intermediaries All investors, including foreign investors, have equal Settlement cycle T+2 T+2 access to the primary and secondary debt market via Access All investors 13 authorized primary dealers. As of December 2009, (including foreign entities) 20 banks and 5 financial institutions were active in the Algerian capital market. Algeria 5

Investors capital market to fulfil their financing needs at competi- The main investors are commercial banks, mutual funds tive prices. and insurance companies. Foreign investor participation is relatively low. During the first semester of 2009, the total Secondary Market debt issued by the Government of Algeria was DZD 74 The Algerian secondary market is relatively liquid. In billion, comprised of BTC (34%), BTA (37%) and OAT (29%). 2009, the trading volume was DZD 185.3 billion, executed through 287 transactions. Investors have access to both Primary Market secondary and primary markets through 13 primary deal- The National Treasury and major corporations, including ers, that include commercial banks. financial institutions, regularly issue debt in the local

Foreign Exchange Market

The Algerian Dinar (DZD) exchange rate follows DZD per Unit of USD (Year End) a managed floating regime, based on a composite of cur- 80 rencies.

The interbank foreign exchange market consists of two components: the interbank foreign exchange spot market and the interbank foreign exchange forward market. The 70 Algerian FX forward market is active up to two years. The BoA acts as counterparty for spot FX transactions. Transactions are processed by telephone, telex and other electronic systems. The BOA operates continuously and 60 participants can conduct transactions during all working Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 hours. Source: Bloomberg

The opposite graph provides historical levels of the DZD against the USD.

Derivatives Market

There is no interest rate or cross currency swap market deliverable forwards (NDF) transactions that have been in Algeria. However, there are a few off-shore non- executed.

Regulation and Taxation

Regulation The Banking Commission is in charge of supervising the The bond market is regulated by the Commission d’Or- banking sector, while the Monetary and Credit Board ganisation et de Surveillance des Opérations de Bourse regulates non-bank lending institutions. (COSOB), which also sets the operating rules of the Stock Exchange. The regulatory framework was put in place by Taxation COSOB in the early 1990s and is regularly updated. The Income from Government securities is subject to a 10% role of COSOB is supervisory in nature; it focuses on the withholding tax. For Treasury bills, the 10% flat tax is protection of public savings invested in securities, market withheld at maturity date, while for coupon-paying bonds surveillance, and transparency. Any entity planning to the tax is paid on the date of the coupon payment. Gov- raise funds through the stock exchange needs to comply ernment securities with tenors longer than five years are with the regulations of the Algerian “Code de Commerce”. exempt from tax. 6 Algeria

Clearing and Settlement

In 2004, Algérie Clearing was officially established as the Clearing monitors a computerized settlement and delivery central depository for all securities in Algeria. Algérie system. Settlement is T+2.

Regulatory Contacts Banque Centrale d’Algérie Commision d’Organisation et de 38, Avénue Franklin Roosevelt, ­Surveillance des Operations Villa Jolie Algiers, Algeria de Bourse (COSOB) Tel: +213-21-692222 17 Campagne CHKIKEN, 16045, Fax: +213-21-692200 Bal d’Hydra, Alger, Algeria E-mail: [email protected] Tel: +213-21-591015 Website: www.bank-of-algeria.dz Fax: +213-21-591019 E-mail: [email protected] Website: www.cosob.com.dz Angola

2009 at a glance

Population (mn) 18.5 CONGO

Brazzaville Population growth (annual %) 2.6 Pointe-Noire Kinshasa DEMO. REP. OF CONGO Cabinda Official language Portuguese Kananga Mbuji-Mayi Currency Kwanza (AOA)

GDP (Current US$ bn) 89.5

Luanda GDP growth (annual %) -0.04 Malanje GDP per capita (Current US$) 4,840

Total Debt (US$ bn) 18.6 OCEAN ATLANTIC ANGOLA

Benguela Total Debt/GDP (%) 20.7 Huambo

CPI (annual %) 14.2 Lubango Exports of Goods and services (% of GDP) 52.0 ZAMBIA Gross Official Reserves (in US$ bn) 14.00

Gross Official Reserves (in months of imports) 5.9

AOA / 1 USD (Year end) 89.15 NAMIBIA BOTSWANA Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency

Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» The last decade was a period of significant progress and growth for Angola. »» Domestic debt offering includes short-dated Treasury bills and Central Bank bills, as well as medium- to long-term Government bonds. Securities are issued in both USD and AOA. »» Commercial banks are the only active participants in the domestic debt market. 8 Angola

Monetary Policy and Money Market

The Central Bank, Banco Nacional de Angola (BNA), is The rediscount rate and reserve requirements are the responsible for implementing monetary policy and manag- BNA’s preferred policy tools. Recently the BNA relaxed its ing FX reserves. The significant oil export revenues have requirements by allowing the use of Government bonds as resulted in inflationary pressures that require the Central reserves for both domestic and foreign currency deposits. Bank to intervene frequently to maintain the monetary base at the required level.

Fixed Income Market

Government Securities paid every six months. For Treasury bonds denominated The fixed income market in Angola is at an early stage of in Kwanza (AOA), the nominal USD amount is calculated development. The Government is the sole active issuer, daily as per the USD/AOA exchange rate of the day. with a total market capitalization of Government bills and bonds of USD 6 billion, with a 50/50 split between Intermediaries bills and bonds. There are no intermediaries at present. Treasury bills and bonds are issued directly by the Central Bank to The offering of Treasury bills includes 28-, 60-, 90 and commercial banks. 182 days maturities, and these instruments are issued to fund short-term liquidity requirements. Investors The investor base is composed exclusively of commercial There are also longer-term instruments available: Gov- banks. There are currently 20 banks operating in Angola, ernment bonds denominated in local currency have ma- mostly foreign-owned, and principally by South African turities between 1 and 20 years, while foreign currency and Portuguese Banks. The market is dominated by three instruments extend out to 6.5 years. These instruments large state owned/controlled players: Banco de Fomento were initially issued to repay arrears that were due to de Angola (BFA), Banco de Poupança e Crédito (BPC) and domestic bond holders. Banco Africano de Investimentos (BAI).

Auctions are conducted on a weekly basis.1 Primary Market The issuance activity of private sector borrowers is nonex- Inflation-linked instruments are in significant demand istent. It is expected that the creation of a stock exchange and now constitute close to 90% of the market. in Luanda will encourage companies to issue in the fixed income market. The interest rate on Treasury bonds can be fixed or float- ing (indexed to USD LIBOR plus a fixed margin) and is Secondary Market The secondary market is very shallow. The buy-and-hold 1 Relatorio dos Titulos do Tesouro, 2007-2008, Ministerio das strategy adopted by most investors restricts the develop- Financas de Angola ment of an active secondary market.

Foreign Exchange Market

The Angolan Kwanza follows a managed floating cur- there is a gap between the BNA’s Kwanza reference rate rency regime, with the Central Bank targeting a strong and rates applied in the foreign exchange market. Outward Kwanza policy. movement of foreign curency is restricted.

The BNA influences the exchange rate by selling a limited Net foreign reserves stood at USD 10 billion by the end of amount of dollars at a pre-determined rate. As a result, June 2009, a significant decrease from their peak of USD Angola 9

20 billion in November 2008. The decline in reserves was AOA per Unit of USD (Year End) prompted mainly by lower oil and diamond revenues, 100 coupled with a relatively inelastic import demand.

The opposite graph illustrates the historical levels of the AOA against the USD. 80

60 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09

Source: Bloomberg

Derivatives Market

There is no active derivatives market in Angola.

Regulation and Taxation Regulation Taxation The Central Bank has regulatory oversight of financial There is a withholding tax of 10% charged on interest institutions such as banks, foreign exchange houses and payments to residents and non-residents. other non-bank financial institutions.

Regulatory Contacts Banco Nacional de Angola 151, Av 4 de Fevereiro Luanda, Angola Tel : +244 222 399125 Fax : + 244 – 222-390579 Botswana

2009 at a glance Lusaka

ANGOLA ZAMBIA Population (mn) 1.9

Population growth (annual %) 1.5 Harare

ZIMBABWE Official language English Gweru

Currency Pula (BWP) NAMIBIA Bulawayo

Francistown GDP (Current US$ bn) 11.6

GDP growth (annual %) -7.3 BOTSWANA

GDP per capita (Current US$) 5,937.7 Gaborone

Total Debt (US$ bn) 2.4 MOZAMBIQUE Pretoria Keetmanshoop Johannesburg Maputo Total Debt/GDP (%) 21.0 Mbabane SOUTH AFRICA CPI (annual %) 9.0 SWAZILAND LESOTHO Exports of Goods and services (% of GDP) 37.2

Gross Official Reserves (in US$ bn) 8.3

Gross Official Reserves (in months of imports) 18.4

BWP / 1 USD(Year end) 6.6622

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency

Fitch Not rated Not rated

Moody’s A2 A2

S & P A A-

Source: Bloomberg

Summary

»» Capital markets in Botswana have grown significantly in recent years; the nominal value of bonds quoted in the Botswana Stock Exchange (BSE) has increased from BWP 4 billion in 2006 to BWP 6.06 billion in 2009. »» Through its bond issuance program, the Government aims to develop a national yield curve and expand the range of long-term finance solutions available to local investors. »» Commercial banks control a large share of the domestic bond market and pension funds are increasingly one of the main fixed income investors. »» The development of an active secondary market has been hampered by the buy-and- hold approach adopted by most investors. »» Bloomberg and Reuters codes for market data: • PULF, BBBONDS, STBWBONDS, FNBONDS and SCBONDS. 12 Botswana

Monetary Policy and Money Market Monetary Policy Money Market The Central Bank of Botswana (BoB) is responsible for The Bank of Botswana uses 14 and 91-days certificates implementing monetary policy. The bank’s role is all- (BoBCs) to implement Monetary Policy operations. These encompassing and includes the supervision of the financial instruments are highly liquid, with a total issuance of BWP system, safeguarding public confidence in the national 5.9 billion for the 14-day and BWP 10.6 billion for 91-day currency, and advising the Government on economic and as of October 2009. This large volume of transactions is financial matters. explained by the absence of alternative short-term money market instruments. At present, BoBCs are the only at- The Bank targets a low and sustainable inflation level, tractive short-term investment instruments available. by using open market operations to influence interest rates and restrain excessive liquidity. In recent years, the The purchase and holding of these securities is restricted significant growth of private pension funds has led to an to commercial banks. increase in liquidity in the domestic market. This has required the BoB to intervene more frequently.

Fixed Income Market Government Securities The total market capitalization of Government and cor- bonds, namely BW004, BW005, BW006 and BW003, that porate bonds, including foreign bonds with dual listing in mature in March 2011, September 2018, March 2012 and other exchanges, stood at BWP 317 billion in September October 2015 respectively. The graph below illustrates 2009. the maturity profile of these securities.

The Government hopes to develop the domestic capital Maturity profile of Government of Botswana market through the issuance of bills and bonds by increas- securities as at June 30, 2009 (in Pula)

ing the number of available financial instruments and Billions establishing a benchmark yield curve, that is shown in 2,0 the graph below. All Government bonds pay a fixed rate coupon and have a bullet type repayment profile. None 1,5 of the existing bonds is callable.

1,0 Government securities yield curve as at June 30,

2007, 2008 and 2009 0,5 15%

0,0 0 to 1 year 1 to 2 years 3 to 5 years 5 to 10 years 12% Maturity Source: Central Bank of Botswana 9% Government bonds are auctioned and traded on a yield-to- 6% maturity basis at uniform price auctions (auctions where 91 182 1 year 2 years 3 years 5 years 6 years 9 years days days bids are processed at the established cut-off bid price). Yields as at June 30, 2009 Yields as at June 30, 2008 Non-Government Securities Yields as at June 30, 2007 The Government has set up a Debt Participation Capital Source: Central Bank of Botswana Fund (DPCF) as a special purpose vehicle which securitizes a portfolio of Government loans to parastatals. The DPCF As of December 2009, the list of Government securities has issued bonds with maturities of 3-, 6-, 9-, 12-, 15-, 18 comprised a 6-month Treasury bill and of Government and 21-year tenors so as to provide quasi-sovereign pricing Botswana 13 benchmarks for corporate issues. All these instruments The local non-bank investor base (asset management, life are listed in the Botswana Stock Exchange. and general insurance companies) is deep and diversified.

Other public sector issuers include the Botswana Telecom- Foreign investors may participate in the local Govern- munications Corporation, the Botswana Development ment bond market. The 2-year BW001 issued in 2003 Corporation, the Water Utilities Corporation, the Botswana proved quite attractive to international investors. The Vaccine Institute and the Botswana Building Society. steep devaluation of the Pula in 2005, which occurred shortly before the instrument’s maturity, had a negative The issuance activity of private sector borrowers is domi- impact on foreign investors’ confidence. Since then, for- nated by financial institutions, mostly international in- eign holdings of Government bonds have been negligible. stitutions operating in the country. There are a few non- financial corporate issuers, such as Kgalagadi Breweries Holdings by category of investor as at June 30, and Piermont Group Botswana. 2009 (in percent) Central Bank 1% Since 2005, supranational issuers such as the AfDB, the EIB and KfW have tapped the market for local currency denominated bonds. These issues helped to meet increas- ing international investor demand for debt in higher- Commercial Banks yielding currencies. 24%

Intermediaries Other There are 5 primary dealers for over-the-counter transac- 75% tions involving Government securities, namely Barclays Bank Botswana, First National Bank Botswana, Stanbic Bank Botswana, Standard Bank Botswana and the African Banking Corporation. All commercial and merchant banks in Botswana are dealers for issues other than Government Source: Central Bank of Botswana securities. Secondary Market In addition, four registered brokerage companies are Most investors prefer to hold securities until maturity. operating on the Botswana Stock Exchange (BSE). This buy-and-hold approach restricts the development of an active secondary market. Investors Market participants include domestic and foreign compa- The Bank of Botswana keeps a small portion of these nies, commercial banks, corporates, parastatals and insti- securities to use in Repo operations in the event that tutional investors (pension funds, insurance companies primary dealers have short-sold their positions in the and mutual funds), as illustrated in the chart opposite. secondary market.

Foreign Exchange Market

The Botswana Pula (BWP) is a fully convertible currency The graph below illustrates the historical levels of the that operates under a crawling-band exchange rate regime BWP against the USD. composed of the IMF Special Drawings Rights (SDR) and the South African Rand. BWP per Unit of USD (Year End) 8 Since March 2009, the crawling-band margins have been set at +/0.125%. The spot market is liquid and the main 7 cross is BWP/USD. However, the BWP is also quoted against GBP, EUR and ZAR. 6

There are no restrictions to investment repatriation and 5 no foreign exchange controls. All the Balance of Payments accounts are liberalized. 4 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09

Source: Bloomberg 14 Botswana

Derivatives Market

The main derivatives activity consists of over-the-counter tenors of up to 6 months and 3 months, respectively. foreign exchange forwards and hard currency swaps. Both Currency swaps are mostly against the USD, but can be forwards and currency swaps markets are liquid, with crossed against any hard currency.

Regulation and Taxation Regulation Capital markets are supervised by the Botswana Stock Taxation Exchange Committee in conjunction with the Banking Withholding tax on interest is 15% and 10% for non- and Capital Markets Unit of the Ministry of Finance. residents and residents respectively. There is a 25% capital gains tax applicable to both residents and non-residents. The BSE was established in 1989 and began formal opera- Securities issued by domestic public companies are exempt tions in 1995. It is responsible for regulating and operating from capital gains tax. the equity and fixed income markets and has sole jurisdic- tion in approving securities for listing on the exchange. Botswana has double taxation treaties with France, Mau- ritius, Russia, South Africa, Seychelles, Sweden and the The Bank of Botswana has a supervisory role and is au- United Kingdom. thorized to enact management rules and set prudential standards for banking institutions.

The Non-Bank Financial Institutions Regulatory Author- ity (NBFIRA) was established in 2008 to regulate and supervise non-bank financial Institutions.

Clearing and Settlement

Government bonds are cleared and settled through the securities clearing houses, Clearstream and Euroclear, Bank of Botswana. Other bonds are cleared and settled for the Pula to obtain settlement status. The BWP is the at the Stock Exchange. second African currency after the South African Rand (ZAR) to achieve this status. Bonds denominated in BWP In the context of its 2005 bond issue in Botswana, the can be fully traded, settled and held, using Clearstream AfDB worked closely with the two main international and Euroclear.

Regulatory Contacts Bank of Botswana Capital markets regulator P/Bag 154 P/Bag 00314 Khama Crescent Street Showground, MVA House Botswana Botswana Tel: + 267 360 6567 Tel:+ 267 310 2595 Fax: +267 390 4325 Fax: + 267 310 2376 E-mail: [email protected] E-mail: [email protected] Website: www.bankofbotswana.bw Botswana 15

Stock Exchange Insurance regulator P/Bag 00417 P/Bag 00314 Fairgrounds Plot 64511 Showground, MVA House Botswana Botswana Tel: + 267 318 0201 Tel:+ 267 310 2595 Fax: +267 318 0175 Fax: + 267 310 2376 E-mail: [email protected] E-mail: [email protected] Burundi

Kibuye Gitarama 2009 at a glance Kibungo RWANDA Population (million) 8.3 Gikongoro Population growth (annual %) 2.8 Cyangugu Butare Official language French

Currency Burundi Franc (BIF)

GDP (Current US$ bn) 1.2

GDP growth (annual %) 3.4 Bujumbura OF CONGO GDP per capita 151 Kibondo

DEMOCRATIC REPUBLIC BURUNDI External Debt (US$ bn) 0.4 TANZANIA External Debt/GDP (%) 32.1

CPI 12.5

Exports of Goods and services (% of GDP) 6.0

Gross Official Reserves (in US$ bn) 0.3

Gross Official Reserves (in months of imports) 6.6

BIF / 1 USD (Year end) 1,230.50

Source: AfDB, BRB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency

Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» The Government securities yield curve has longest maturity of 5 years »» Limited investor base with marginal presence of foreign investors. »» Weekly Auction of Treasury bills and bonds. »» Reforms to enhance the capital market are ongoing, with a planned introduction of a Repo market in the medium term. 18 Burundi

Monetary Policy and Money Market

Monetary Policy bills, the single refinancing rate, and minimum reserve The Central Bank of Burundi, “Banque de la Republique requirements for banks. du Burundi” (BRB), formulates and implements monetary policy. The Central Bank targets monetary aggregates to Money Market achieve the main goal of price stability. In 1988, the BRB Burundi’s money market is at an early stage of develop- shifted from a direct monetary policy (control of money ment and at present Treasury bills are the only existing supply and interest rates) to indirect monetary policy that instruments. In the medium term, the Central Bank hopes uses market-based instruments to influence money supply to create a Repo market to strengthen the interbank mar- and interest rates. These instruments include Treasury ket and widen the range of available policy instruments.

Fixed Income Market

Government Securities Government securities yield curve as at 30 June Treasury bills and bonds are issued on a weekly basis with 2007, 2008 and 2009 tenors of 13, 26, and 52 weeks, while Treasury bonds are offered for maturities of 2 and 5 years. 10%

Details on Government debt issuances are summarized in the table below. 8% Auction details T-bills T-bonds Auction Weekly Weekly frequency 6% Auction method Multiple Rate Multiple Rate 91-d 182-d 1-y 2-y 5-y Settlement cycle T+6 T+6 30-Jun-09 30-Jun-08 30-Jun-07 Access All investors, including foreign entities Source : Banque de la République du Burundi (BRB) and subject to foreign exchange restric- tions by BRB Minimum bid One hundred (100) million Non-Government Securities amount Burundi Francs Corporations do not issue debt in Burundi. Their financ- Foreign investors Eligible, subject to the Minimum ing needs are met through direct loans from commercial bid amount above banks. Similarly, municipalities do not issue debt.

Source; Central Bank of Burundi Intermediaries As of 30 June 2009, the total outstanding Government Capital market intermediation activity is provided by debt was Burundi Francs (BIF) 135.6 billion, with more commercial banks, as there are no primary dealers. In- than 64% maturing before one year and the remaining vestors’ orders, including orders from foreign investors, debt between 1 and 10 years. Interest on Government are executed by commercial banks through their security securities is payable annually, with bullet repayment of account with the Central Bank. Due to lack of the liquidity the principal. These features are subject to changes by the in the secondary market, all transactions are executed in Treasury to accommodate investors’ needs. the primary market.

The opposite graph presents the changes in the Govern- Investors ment yield curves over the last three years. The yield The Burundi debt market is not very active. The main curve was extended in 2009 with the issue of a 5-year investors are commercial banks, pension funds and in- Treasury bond. surance companies. Foreign investors have access to the Burundi 19 fixed income market, but so far, their participation has Primary Market been marginal. As the issuer of debt for the Republic of Burundi, the Treasury issues Treasury bills and bonds to fulfil the Commercial banks account for more than 65% of the out- Government’s financing needs. standing Government debt holdings, while the Central Bank and insurance companies hold 24.22% and 6.26% Secondary Market of Government debt, respectively. There is no secondary bond market in Burundi; most investments are held to maturity. Details of the holdings by category of investors at the end of the second semester 2009 are provided in the following chart.

Holdings by category of investor as at June 30, 2009 (in percent)

Others, 0.221%

Central Bank, 24.221%

Pension Funds, Commercial Banks, 4.204% 65.085% Insurance Co., 6.269%

Source: BRB

Foreign Exchange Market

The exchange rate policy has recently shifted from a man- The graph below provides historical levels of the BIF aged float to a flexible, market-determined exchange rate against USD. regime. The BRB intervenes in the FX market by two-way 1,500 auctioning which allows either commercial banks or BRB to sell or buy foreign currency at market determined rates.

Capital account transactions remain subject to some re- 1,200 strictions in terms of prior approval by BRB for outward foreign direct investment.

Interest income and capital gains by foreign investors are 900 freely repatriated. Non-residents are allowed to hold Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 accounts in foreign currencies or in Burundi Franc for their investments, subject to confirmation of the foreign Source: BRB exchange transaction with an authorized dealer. 20 Burundi

Derivatives Market

There is no derivatives market in Burundi.

Regulation and Taxation Regulation Taxation The Central Bank of Burundi oversees the banking sector Interest income and capital gains on Treasury bills and while the Ministry of Finance, through the Regulation and bonds are tax exempt, for all categories of investors. Control Agency, supervises the insurance sector.

Clearing and Settlement

The Central Bank of Burundi is the clearing and settlement All securities are identified with a standard code that house, as well as the central depository for securities. includes the date, month and year of issue. Settlement Not all investors hold accounts with the BRB and only is made on a gross basis, and delivery versus payments commercial banks are authorized to open securities ac- is not yet achieved. counts with the central bank for their trading activities or for their clients.

Regulatory Contacts Banque de la République du Burundi BP 705, Bujumbura, Burundi Tel: +257 2222 5142 Fax: +257 2222 3128 Website: http://www.brb-bi.net Cape Verde

2009 at a glance Ribeira Grande Santo Antão

Population (mn) 0.5 Tarrafal Mindelo Pedra Lume Palmeira São Vicente São Nicolau Population growth (annual %) 1.4 Ribeira Brava Sal Santa Maria Official language Portuguese

Currency Cape Verde Escudo Sal Rei (CVE) CAPE-VERDE Curral Velho Boa Vista GDP (Current US$ bn) 1.9

ATLANTIC OCEAN GDP growth (annual %) 3.3

GDP per capita (Current US$) 3,688.1 Tarrafal Maio Porto Inglés Total Debt (US$ bn) 1.1 Assamada

São Filipe Praia Total Debt/GDP (%) 57.7 Sintra Brava Fogo Santiago CPI (annual %) 4.7

Exports of Goods and services (% of GDP) 15.1

Gross Official Reserves (2008 - in US$ bn) 0.3

Gross Official Reserves (2008 - in months of 2.7 imports)

CVE / 1 USD (Year End) 73.9810

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency

Fitch BB- B+

Moody’s Not rated Not rated

S & P B+ B+

Source: Bloomberg

Summary

»» Cape Verde has a small but well-established financial system. »» The country’s banking sector is still fairly isolated from the global markets and was shielded from the recent financial turmoil. »» The fixed income market is dominated by central Government issuance. »» The investor base is dominated by commercial banks. 22 Cape Verde

Monetary Policy and Money Market

The Central Bank, Banco de Cabo Verde (BCV), is respon- open market operations to mop up excess liquidity using sible for defining monetary policy. The main policy goal “Titulos de Intervencao Monetaria” (TIM). is maintaining the fixed currency peg of the Cape Verde Escudo (CVE) against the Euro. In addition, the BCV uses foreign exchange sales to local banks as a policy setting mechanism. The BCV auctions Central Bank bills to influence inter- est rates using “Titulos de Regulacao Monetaria” (TRM), The interbank money market is rather illiquid, character- with maturities of up to 14 days. The BCV also conducts ized by a restricted number of participants.

Fixed Income Market Government Securities Intermediaries The offering of Treasury bills includes securities of 91-, The BCV is the issuer of all Government securities. All 182and 364-days maturities. Bills are sold through auc- transactions involving fixed income instruments issued by tions by the BCV. private companies are conducted via commercial banks.

Longer instruments are also available, with maturities of 3, Investors 5, 6 and 10 years which are used to finance medium and Commercial banks are the main buyers of Government long-term Government spending. The minimum dealing bills and bonds in the competitive market. To date, there size for Treasury bonds is CVE 10,000. are five commercial banks active in the country: “Banco Comercial do Atlantico”, “Caixa Economica de Cabo Verde”, The graph below illustrates the Government securities “Banco Interatlantico”, “Banco Caboverdiano de Negocios” yield curve. and “Banco Africano de Investimentos”.

Government securities yield curve as at 20 April 2010 There is also an offshore banking market, which comprises eight international banking institutions. 8

7 Additionally, there is a thriving market for non-bank financial institutions such as Insurance companies, Asset 6 Manager and Pension Funds.

5 Retail Investors are encouraged to participate in the fixed income market. A large portion of these small investors 4 are part of the Cape Verde Diaspora.

3 1 91 182 1 2 3 4 5 6 7 8 9 10 Secondary Market week days days yr yrs yrs yrs yrs yrs yrs yrs yrs yrs The secondary market is not very active, with most inves- Source: Central Bank of Cape Verde tors adopting a buy-and-hold approach. The development of a thriving secondary market is one of the cornerstones of Non-Government Securities the country’s medium and long-term debt market strategy. The number of corporate bonds in the market is small and limited to a few well-established banks, the national transport companies and real estate operators. In 2008, for the first time, a privately held bank issued a bond without Government guarantee.

The interest rate profile of available instruments includes fixed and floating rates. As of late 2009, the longest avail- able maturity was 10 years.

Cape Verde 23

Foreign Exchange Market

The Cape Verde Escudo is under a fixed peg regime to the CVE per Unit of USD (Year End)

Euro. The Central Bank monitors its policy interest rate 100 in a manner consistent with the peg.

Current account transactions have been liberalized. Foreign investors are allowed to hold foreign currency denomi- nated accounts. 80

The opposite graph provides historical levels of the CVE against USD. 60 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Source: Bloomberg

Regulation and Taxation Regulation Taxation Capital markets are regulated by the “Codigo do Mercado Interest paid on Treasury bills and bonds is exempt from dos Valores Mobiliários” which regulates the issuance of tax. Corporate-Bonds are taxed at a rate of 5% as of 2009. bonds. The BCV has regulatory oversight of the financial sector. Insurance companies fall under the supervision of the Ministry of Finance.

Clearing and Settlement

The BCV is in charge of maintaining the country’s pay- system was supported by physical documents, although ment system. The “Sistema Integrado de Compensacao it is evolving progressively to an electronic processing Interbancaria e de Liquidacao” (SICIL) is the settlement system. mechanism used for transactions involving the BCV, com- mercial banks, the Treasury and the stock exchange.1 This

1 Banco Central de Cabo Verde: Relatorio de Estabilidade Financeira 2008

Regulatory Contacts Banco de Cabo Verde CP 101 Praia Cape Verde Tel: (+238) 261 5526/5530 Fax: (+238) 261 1914 Email: [email protected] Website: www.bcv.cv Central African Economic and ­Monetary Community (CEMAC)

2009 at a glance Cameroon Central Chad Congo Equatorial Gabon African Guinea Republic Population (mn) 19.5 4.4 11.2 3.7 0.7 1.5 Population growth (annual %) 2.3 1.9 2.7 1.7 2.6 1.8 Official language French/ French French/ French Spanish/ French English Arabic French Currency CFA Franc (XAF) GDP (Current US$ bn) 24.4 2.1 5.1 12.6 11.6 11.7 GDP growth (annual %) 2.4 2.3 1.7 9.5 -4.1 0.7 GDP per capita (Current US$) 1,248.7 475.6 453.8 3,431.3 17,164.9 7,937.4 Total Debt (US$ bn) 1.7 1.1 1.5 2.1 0.1 2.1 Total Debt/GDP (%) 7.1 48.2 30.1 16.8 1.0 17.6 CPI (annual %) 2.6 3.3 4.0 4.0 5.1 1.9 Exports of Goods and services 22.7 12.3 49.7 77.4 92.1 56.7 (% of GDP) Gross Official Reserves (in US$ bn) 3.1 0.1 0.9 3.6 3.8 1.8 Gross Official Reserves 5.9 3.5 2.8 9.5 10.2 5.9 (in months of imports) XAF / 1 USD (Year End) 457.840

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Summary Long-term Local Currency Foreign Currency »» The Government bond market in the CEMAC region Gabon is still at a nascent stage with only one Government Fitch BB- BB- bond outstanding. Moody’s Not rated Not rated »» The CEMAC region has an active corporate bond primary market. S & P BB- BB- »» Framework is in place for weekly and monthly Cameroon auctions of Treasury bills and bonds. Issuances are Fitch B- B expected in the coming months. Moody’s Not rated Not rated S & P B B Chad, Congo, Equatorial Guinea, Central African Republic Fitch Not rated Not rated Moody’s Not rated Not rated S & P Not rated Not rated

Source: Bloomberg SWITZERLAND SLOVENIIA Odesa Elista Lyon Milan Zagreb ROMANIA Ljubljana Bordeaux Turin BOSNIA & Belgrade Bucharest Krasnodar Majkop Genoa CROATIA HERZEG. Nal'{ik Toulouse Florence Sarajevo BilbaoHendaye MONACO SAN Groznyj Adriatic BULGARIA Black Sea ANDORRA Marseille VATICANMARINO YUGOSLAVIA Sofia Andorra Sea Skopje GEORGIA Corsica CITY Tbilisi ALBANIA Edirne Rome MACEDONIA Istanbul Porto Barcelona Tiranë ARMENIA AZERBAIJAN Isl. Naples Ankara Yerevan PORTUGAL Madrid ric Salonika ea al Sardinia ITALY Bursa TURKEY SPAIN B AZER. Valencia Lisbon Athens Palermo Izmir Sea Sevilla ean Sicily ran Algiers Tunis GREECE ter Aleppo edi Valletta Strait of Gibraltar Málaga M MALTA Nicosia Homs SYRIA Hamadàn Rabat Crete CYPRUS LEBANON Beirut TUNISIA Damascus MOROCCO Tel Aviv-Jaffa IRAQ Baghdad Tripoli Jerusalem Amman ISRAEL Basra JORDAN KUWAIT

SAUDI ARABIA

Red Sea Riyadh

LIBYA EGYPT ALGERIA

MAURITANIA

NIGER ERITREA CHAD Asmera Sana

SUDAN Bamako DJIBOUTI N'Djamena Djibouti GUINEA NIGERIA SIERRA IVORY Addis Ababa BENIN

LEONE COAST TOGO CENTRAL ETHIOPIA Abidjan Porto AFRICAN REPUBLIC Novo Bangui LIBERIA CAMEROON Bata Yaoundé EQUAT. Mogadishu KENYA GUINEA Libreville CONGO DEMOCRATIC Gulf of Guinea GABON REPUBLIC OF Nairobi CONGO RWANDA

Brazzaville BURUNDI

Zanzibar Dar es Salaam

ANGOLA Moroni COMOROS

Mayotte France

Saint-Helena l e MADAGASCAR UK Harare n n a E h U ZIMBABWE C Q e I u B iq NAMIBIA M b A m

Z a BOTSWANA z O o

M M Windhoek

South Gaborone Atlantic Pretoria Ocean Maputo

Mbabane SWAZILAND Indian Ocean 26 Central African Economic and Monetary Union (CEMAC)

CEMAC Overview

The Economic and Monetary Community for Central common currency, the CFA Franc (Franc de la Coopération Africa (CEMAC) has six member states: Cameroon, Cen- Financière en Afrique Centrale). tral African Republic, Chad, Congo, Equatorial Guinea and Gabon. The framework for this organization was In 2003, CEMAC countries agreed to create a common prepared in 1994 by the Customs and Economic Union regional stock exchange market with the establishment of Central Africa (UDEAC). UDEAC was superseded by of the BVMAC1, located in Libreville, Gabon, while Cam- CEMAC in 1999. eroon launched its own stock exchange, the Douala Stock Exchange (DSX). The BVMAC welcomed its first opera- CEMAC aims to promote the regional and economic tions in August 2008 with the listing of the Gabonese integration of its member states by forming a monetary Republic’s initial sovereign bond. union. CEMAC member countries share a common inde- pendent Central Bank, the Bank of Central African States (Banque des Etats de l’Afrique Centrale – BEAC), and a 1 Bourse des Valeurs Mobilières de l’Afrique Centrale

Monetary Policy and Money Market

The BEAC’s main policy goal is to maintain price stability The BEAC uses both reserve requirements and the dis- and to the extent possible to support the general economic count window to implement its policy. The Bank’s main policies of member countries. The BEAC also aims to benchmark interest rate is the “taux d’intérêt des ap- preserve the stability of the CFA Franc (XAF), which is pels d’offres” (TIAO), which is the interest rate at which pegged to the Euro. The French Treasury guarantees the funds are extended to financial institutions. The Bank convertibility of the XAF. also provides funding to CEMAC member states to fund their deficits. The BEAC sets the monetary policy for the CEMAC’s zone and that of the individual member states. The Bank focuses The funding is charged at specific rates set by the Gover- on keeping monetary and credit variables under control nor. In July 2002, the BEAC decided to limit its member- and in line with macroeconomic objectives such as GDP country draw-downs to 20% of the amount of tax receipts growth and balance of payments stability. corresponding to the previous fiscal year, however, this measure was never enforced. On 1 July 2009, member A monetary policy committee takes policy decisions when countries renewed their commitments to annually reduce needed and communicates final decisions to the public. the outstanding amount of their borrowings from the The target inflation rate for the region has been set at a BEAC by gradually replacing BEAC’s loans with Treasury maximum of 3%. bills and bond. There is no money market benchmark reference in the XAF zone.

Fixed Income Market Government Securities Instruments The Government bond market is still at a nascent stage as In order to fulfil their short-term funding needs, national there is no significant bond issuance track record. There treasuries are allowed to conduct weekly auctions to is- has been no recent Treasury bills and bonds issuance sue short-term debt. Member states are also allowed to from member states. conduct monthly auctions to issue Treasury bonds of 2-year tenor and above. In addition, bond syndication by local and foreign issuers is allowed. Central African Economic and Monetary Union (CEMAC) 27

Intermediaries Treasury bills and bonds (Bons et Obligations du Trésor) Primary subscription of Treasury bills and bonds is to can be issued through weekly and monthly auctions re- some extent limited to primary dealers, including banks spectively with 13-, 26 and 52-week tenors for Treasury and national and regional financial institutions, which bills and 2-years maturity or more for Treasury bonds. have a depository account with BEAC. Since 2004, a few The national treasuries of member states act as issuing brokerage houses have been created in the region: 3 in agents to fulfil their respective countries’ budget deficits Gabon and 11 in Cameroon. There are also investment and debt management requirements. banks licensed as brokers.

The details of Government debt issuance are summarized Investors in the table below. All investors have direct or indirect (via brokers and dealers) access to the primary market. Foreign investors Auction details can participate in the market through local banks. Banks T-bills T-bonds dominate the financial sector and account for most of the financial assets. A few foreign banks have established a Auction Weekly Weekly frequency presence in three CEMAC countries, and together repre- sent about one-third of the sector. Credit growth remains Auction method Requested/ Requested/ hampered by a lack of competition. A significant reduction Multiple rates Multiple rates of credit extension was observed in 2009 as local banks Settlement cycle BVMAC (T+3) sought to reduce their exposure. DSX (T+4)

Access Through 15 primary dealers The BEAC does not purchase securities for its own books Minimum bid XAF 10 million in the primary market, but under certain conditions can amount intervene in the secondary bonds market and purchase Foreign investors Not allowed to participate securities that were issued by public auction. Primary Market Non-Government Securities Participation at auction is restricted to primary dealers The CEMAC corporate debt market is still at a nascent which hold sufficient reserves in their depository accounts stage. Up to 2008, the only issues were the BDEAC private with BEAC. placements2, and the City of Douala inaugural medium- term notes programme3. In 2009, two bond issues were However, in the case of bonds syndication, all investors launched by IFC and Prix-Import. The table below provides (foreign and domestic) have free access to the primary a list of bond issues in the CEMAC zone. market. The minimum investment size is XAF 10 mil- lion. Transactions on securities issued by public auction 2 BDEAC issued in 2007, XAF 30bn 5.50% 2012 bond are executed over-the-counter (OTC) while syndicated 3 City of Douala Issued in 2005, XAF 16bn 2010 8.25% bond. bonds are traded both on the stock exchange and OTC.

List of bonds issued in the CEMAC zone since 20054 Year Issue name Rating Nominal Coupon Coupon Maturity Remarks (in bn ­Frequency (year) XAF) 2009 International Finance Corporation AAA 20.00 4.25% Annual 2014 Listed on BVMAC (IFC) &DSX 2009 Prix-Import N/R 500.00 7.00% Annual 2014 Listed on the BV- MAC 2008 BGFI N/R 40.00 5.00% Annual 2014 Private Placement 2008 Banque Gabonaise de Développe- B+ 10.00 6.00% Annual 2014 Private Placement ment (BGD) 2007 Republic of Gabon BB- 100.00 5.50% Annual 2013 Listed on the BV- MAC 2007 Central African Republic N/R 45.00 8.00% Annual 2012 Cancelled 2007 BDEAC N/R 30.00 5.50% Annual 2012 Private Placement 2005 City of Douala N/R 16.00 8.25% Annual 2010 Private Placement

4 Source: COSUMAF as at March 24, 2010. 28 Central African Economic and Monetary Union (CEMAC)

Secondary Market The standard day-count conventions are Act/365 for The secondary market is still embryonic. All second- bonds and Act/360 for the money market. Currently, ary market transactions must be conducted via certified only fixed coupon debt instruments with bullet repay- intermediaries such as banks, non-bank institutions, ment are allowed. regional financial institutions, asset managers and bro- kerage companies.

Foreign Exchange Market

The CFA Franc (XAF) follows a fixed currency peg regime XAF per Unit of USD (Year End)

against the Euro. The Franc is not traded outside of the 600 union, but is fully convertible against the Euro. The parity is currently set at 655.957 XAF per 1 EUR.

The current account is fully liberalized while capital ac- count transactions are subject to declaration requirements. 500

400 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bloomberg

Derivatives Market

Currently, there is no active derivatives market in the region.

Regulation and Taxation

The insurance sector and banking sector are respectively Regulation supervised by the Conférence Interafricaine des Marchés With the exception of Cameroon, the BEAC and the Com- d’Assurances (CIMA) and the Commission Bancaire de mission de Surveillance du Marché Financier de l’Afrique l’Afrique Centrale (COBAC), while the Groupe d’action Centrale (COSUMAF) oversee the capital market, whereas Contre le Blanchiment d’Argent en Afrique Centrale (GA- the BVMAC (the regional stock exchange is not yet fully BAC) deals with money laundering. operational) authorizes the listing of companies and over- sees trading and brokers’ activities in the CEMAC zone. Taxation In Cameroon, the capital market authority is the Com- Interest and capital gains on securities are taxable at 15%. mission des Marchés Financiers (CMF), which oversees However, interest generated on Treasury bills and bonds the Douala Stock Exchange (DSX). is exempt for CEMAC residents.

Central African Economic and Monetary Union (CEMAC) 29

Clearing and Settlement

There are three main clearing and depository houses in DSX are settled by the Caisse Autonome d’Amortissement the CEMAC zone. The clearing and settlement of Treasury du Cameroon (CAAC). securities and other fixed income instruments is done automatically through different settlement platforms. Settlement of transactions is conducted at the close of Securities issued by public auction are settled by the Cel- each trading day. The minimum delivery delay is T+2. lule de Règlement et de Conservation des Titres (CRTC) hosted at the BEAC, securities listed on the BVMAC are settled directly by the exchange, and bonds listed at the

Regulatory Contacts Banques des Etats de l’Afrique Centrale Douala Stock Exchange (DSX) (BEAC) BP 442, Douala, Yaoundé BP 83, Yaoundé, Cameroon 1450 Blvd. de la Avenue Vogt, Yaoundé, Cameroon Liberté, Douala, Yaoundé Tel: +237-223-0511/3390 Tel: +237-343-8583 Fax: +237-223-3380 Fax: +237-343-8584 E-mail: [email protected], [email protected] E-mail: [email protected] Website: www.beac.int Website: www.douala.stock-exchange.com

Bourse des Valeurs Mobilières Commission de Surveillance du Marché de l’Afrique Financier de l’Afrique Centrale (COSUMAF) B.P. 1724, Centrale (BVMAC), Place de l’Indépendence Libreville, Gabon B.P. 2165, Libreville, Gabon Tel: +241-747591 Website: www.bvm-ac.com Fax: +241-747588 E-mail: [email protected] Commission Bancaire de l’Afrique Website: www.cosumaf.org Centrale COBAC) BP 1917, Yaoundé, Cameroon Avenue Vogt, Immeuble de la BEAC, Yaoundé, Cameroon Tel: +237-223-4060/4030 Fax: +237-223-3329

Comoros

2009 at a glance Mitsamiouli Mbéni Population (mn) 0.7 Koimbani COMOROS Ntsoudjini Population growth (annual %) 2.3 Moroni Grande Comore INDIAN OCEAN

Official language French/Arabic Foumbouni Currency Comorian Franc (KMF) Mutsamudu Sima GDP (Current US$ bn) 0.5 Fomboni Domoni Anjouan M’Ramani

GDP growth (annual %) 1.0 Mohéli GDP per capita (Current US$) 775.6 Total Debt (US$ bn) 0.3 Total Debt/GDP (%) 48.5 CPI (annual %) 4.8 Exports of Goods and services (% of GDP) 15.7 Gross Official Reserves (2008 - in US$ bn) 0.1 Gross Official Reserves (2008 - in months of 5.3 imports) KMF / 1 USD ( Year End) 343.181

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» The market does not have fixed income securities. »» Monetary and exchange rate policy is governed by the exchange rate peg enshrined in the Franc Zone Monetary Cooperation Agreement »» There is free convertibility of earnings and capital. 32 Comoros

Monetary Policy and Money Market

The requirement to maintain the Franc Zone peg is the The CCB has set intermediate goals for money supply determinant of monetary policy and is intended to help and domestic credit that it achieves through reserve maintain a level of net foreign assets that is consistent with requirements, a discount rate and refinancing limits on the monetary cooperation agreement signed with France. Government expenditures. The reserve requirement of In this context and under the statutes of the Central Bank 35% applies to all liabilities in the banking system and of Comoros (CCB), the coverage of short-term liabilities is remunerated by the CCB at a specific policy rate. The of the CCB by its foreign assets must be above 20%. The possibilities for refinancing of the state by the CCB are peg to the Euro has provided an anchor for price stability. limited to 20% of the average ordinary budget revenues actually collected during the three previous fiscal years.

Overview of Financial Sector

Until recently, the financial sector comprised of only one Against this background, the IMF in conjunction with foreign-owned commercial bank, a development bank, a Banque de France is providing technical assistance to the postal savings bank, and two networks of microfinance BCC to strengthen financial sector supervision. institutions (MFIs). In the last two years, the Central Bank of Comoros (BCC) has granted licenses for the opening of The Ministry of Finance, as recommended by the BCC two new foreign commercial banks, including one branch established an interest rate floor and cap. However, finan- of Tanzania’s EXIM Bank. These developments are bringing cial institutions determine their own credit and lending about much needed expansion of financial intermediation. policies independently.

Foreign Exchange Market

The Comoros belongs to the Franc Zone. A monetary KMF per Unit of USD (Year End)

cooperation agreement was signed between France and 500 the Comoros on 23 November 1979. This cooperation is based on the following criteria:

»» the unlimited guarantee by France of the currency 400 issued by the CCB; »» the Comorian Franc (KMF) is pegged to the Euro at KMF 491.96775 / 1 EUR; »» deposits with the French Treasury (at least 65% of 300 foreign exchange reserves of the Comoros); and Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 »» free transfers between the Comoros and France. Source: Bloomberg International financial transactions between the Comoros and foreign counterparties are freely convertible.

Comoros 33

Regulation and Taxation

The Banking system is regulated by the Central Bank of Comoros.

Regulatory Contacts Banque Centrale des Comores B.P. 405, Moroni, Comoros Tel: +269-73-0243, 72-1002 Fax: +269-73-0349 E-mail: [email protected] Democratic Republic of Congo

CENTRAL AFRICAN REP. SUDAN 2009 at a glance Bangui

Population (in millions) 66.0 CAMEROON Population growth (%) 2.7

CONGO Kisangani Official language French Mbandaka UGANDA

GABON Kabale Currency Congolese Franc Franceville DEMOCRATIC RWANDA Kigali (CDF) REPUBLIC Bukavu BURUNDI Bujumbura GDP (Current US$ bn) 11.9 Brazzaville OF CONGO Pointe-Noire Kinshasa Kigoma Cabinda GDP growth (annual %) 2.7 Matadi Kananga Mbuji-Mayi GDP per capita (USD) 179.6 TANZANIA

External Debt (US$ in bn) 13.8 Luanda External Debt/GDP (%) 116.6 ANGOLA Lubumbashi CPI(annual change % –end of period) 24.3 Solwezi Benguela Exports of Goods and services (% of GDP) 42.4 ZAMBIA Gross Official Reserves (in US$ bn) 1.1 Gross Official Reserves (in months of imports) 2.0 CDF / 1 USD (Year end) 907.1852

Source: AfDB, BBC, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» Government issues Treasury bills with maturities up to 28 days. »» Weekly auctions for 7-day Treasury bills and monthly auctions for 28-day Treasury bills. »» Commercial banks are the main investors. »» No secondary market activity. 36 Democratic Republic of Congo

Monetary Policy and Money Market Monetary Policy Money Market The Central Bank of the Democratic Republic of Congo The main instruments in the DRC money market are (DRC), the Banque Centrale du Congo (BCC), was estab- Treasury bills (Billet de Trésorerie – BTR), which are is- lished in 1960. It supervises the financial system and sued by the BCC at weekly auctions. acts as the financial and fiscal agent of the Government, providing advice on economic and monetary manage- The first component of this market is the short-term loan ment issues. One of the primary objectives of the BCC window through which authorized commercial banks is to maintain price stability. The BCC formulates and can borrow funds from the BCC for a 7-day maximum implements monetary policy through open market op- tenor. The second component is the permanent facility erations, reserve requirements and the discount rate for window that allows banks to unwind their daily short commercial banks. positions within 24 hours, subject to appropriate collateral with the BCC.

Fixed Income Market

Government Securities Historical BTR weighted average rates from 2003 to The BCC issues BTR with 7-day and 28-day maturities 2009 to absorb excess liquidity in the interbank market. De- 80%

pending on the monetary policy requirement, BTR may 70%

be issued for different maturities. These securities are 60% fully dematerialized and sold through commercial banks 50% with current accounts and securities accounts at the BCC. 40% They are issued weekly, and are freely tradable through 30% the banking system. The rates are set by the BCC based on the year-to-date inflation levels plus a premium. The 20% day-count basis convention used for BTBs is acutal/360. 10% 0% Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Auction details BTR 7-days BTR 14-days BTR 28-days T-bills Source: BCC Auction fre- • Weekly for 7-day BTR quency • Monthly for 28-day BTR* Non-Government Securities Auction method • Banks through competitive bids; There is no corporate debt market in the DRC. Private • Individuals non competitive bids sector financial needs are met directly through commer- Settlement cycle – cial bank loans. Access Banks and other financial institutions Minimum bid CDF 1 000000. Investors amount Commercial banks are the main investors as they account for the majority of BTR holdings. Foreign investors No restriction (*) Depending on the monetary policy needs Primary Market The primary market is restricted to commercial banks The following graph illustrates the change in BTR weighted with securities accounts at the BCC. Institutional and average interest rate from 2003 to 2009. retail investors submit their bids through these com- mercial banks.

Democratic Republic of Congo 37

Secondary Market Commercial banks may buy or sell BTR on the secondary As of 31 December 2009, the outstanding stock of BTR market. In both cases, they are obliged to display prices, was CDF 56.57 billion, an increase of 20.6% compared to both bid and ask, at which they are willing to conduct the outstanding balance as of December 2008. transactions.

Foreign Exchange Market

The Congolese Franc (CDF) was introduced in 1998. The CDF per Unit of USD (Year End)

main objective of the DRC exchange rate policy is to reduce 1000 the currency’s volatility through a managed exchange rate

system. The interbank FX market determines the market 800 rate.

600 The opposite graph provides historical levels of the CDF against the USD. 400

200 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09

Source: Bloomberg

Derivatives Market

There is no derivatives market.

Regulation and Taxation

Regulation The BCC supervises the banking sector, which comprises Taxation 21 commercial banks and several microfinance institutions. Interest and capital gains are taxable at 20% per annum.

Clearing and Settlement

Each bank holds a securities account with the central collection by banks and to issue new ones for purchases bank. A special clearing and settlement session is organ- presented by banks. ized every Wednesday to pay the BTRs presented on 38 Democratic Republic of Congo

Regulatory Contacts Banque Centrale du Congo B.P. 2697, Kinshasa, Democratic Republic of Congo Boulevard Colonnel Tshashi 563, Kinshasa, Democratic Republic of Congo Tel: +243-122-0704 Fax: +243-880-5152 E-mail: [email protected] Website: www.bcc.cd Djibouti

2009 at a glance RED SEA

Population (mn) 0.9 ERITREA BAB EL MANDEB Population growth (annual %) 1.7 Moulhoulé ETHIOPIA Official language French

Khor Angar Currency Djiboutian Franc (DJF) Assa Gueila GDP (Current US$ bn) 1.1 Dorra GDP growth (annual %) 5.1 Obock Eli Dar GDP per capita (Current US$) 1,319.1 Randa Tadjoura GULF OF Total Debt (US$ bn) 0.7 ADEN Galafi DJIBOUTI GULF OF TADJOURA

Total Debt/GDP (%) 57.8 Djibouti Yokobi CPI (annual %) 7.7

Exports of Goods and services (% of GDP) 46.8 Hol Hol Gross Official Reserves (in US$ bn) 0.2 Ali Sabieh Dikhil Daouenlé Gross Official Reserves (in months of imports) 3.1 SOMALIA DJF / 1USD (Year end) 177.720 ETHIOPIA

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» There are no fixed income Government securities in Djibouti. »» The Djiboutian Franc follows a currency board foreign exchange regime and is freely convertible. »» There has been significant growth in the banking sector during the last three years. 40 Djibouti

Monetary Policy and Money Market

Monetary policy is implemented by the Central Bank, the exchange rate. Djibouti does not use open market opera- Banque Centrale de Djibouti, acting on behalf of the National tions or reserve requirements as monetary policy tools Council of Money, Credit and Foreign Trade. Monetary but is considering the introduction of reserve requirement policy of the Central Bank seeks to preserve the value of to mop up structural liquidity and contain inflationary the local currency by maintaining the currency board. pressure. The monetary authorities may extend credit to the state, subject to the specific consent of the Council of The supply of money in Djiboutian Francs (DJF) is de- Ministers and given the obligations of full convertibility termined by the available coverage in USD at the fixed of national currency.

Overview of the Financial Sector

The banking sector has experienced significant growth There is no insurance provision on deposits, however in the last three years. Indo-Suez Bank, in existence for the Central Bank supervision ensures adherence to pru- more than 100 years, and Commercial and Industrial Bank dential rules. (BCIMR), operational for more than 50 years, have domi- nated Djibouti’s banking industry. The BCIMR, a majority The pension system is based on a pay-as-you-go system French-owned bank, controls around 60% of the market. that was created by the French administration before Djibouti’s independence, and is comprised of the follow- During 2009, eight new banks, both Islamic and conven- ing three pension funds: the Caisse Nationale de Retraite tional, were licensed and began operations in the bank- for civil servants, the Organisme de Protection Sociale for ing sector. This number is considerably higher than the private sector employees and public enterprises, and the three that were present in 2006. Iraq-based Warka Bank Caisse Militaire de Retraite for military personnel. for Investment and Finance and Egypt’s Shoura Bank are expected to start operations in Djibouti in 2010. Money transfer services are vital to the functioning of the financial sector. The international money transfer network Most of the new banks are from regional neighbouring Dahabshil opened its first bank branch in Djibouti in countries seeking exposure to the region,primarily by March, and intends to offer Sharia-compliant products. providing deposits and international transactions serv- ices to Ethiopian customers engaged in imports/exports. Djibouti is a member of the regional Free Trade Area of the Djibouti supplies port facilities to Ethiopia. Common Market for Eastern and Southern Africa (­COMESA).

Foreign Exchange Market

Djibouti has followed a Currency Board FX regime for DJF per Unit of USD (Year End)

more than three decades. Accordingly, the full issue of 200 the Djibouti Franc is covered by its foreign exchange reserves. The Djibouti Franc is pegged to the US Dollar, at DJF 177.721 / 1 USD. Djibouti has no foreign exchange restrictions. There are no limitations on converting or 175 transferring funds, or on the inflow and outflow of cash. Second-tier banks are required to have coverage in con- vertible currency that is proportionate to their deposits in national currency. 150 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 The opposite graph provides historical levels of the DJF Source: Bloomberg against the USD. Djibouti 41

Regulation and Taxation

The financial sector is supervised and regulated by the Banque Centrale de Djibouti. There is no tax on financial income, profits or foreign exchange transactions.

Regulatory Contacts Banque Centrale de Djibouti Mailing B. P. 2118, Djibouti Avenue St. Laurent du Var, Djibouti Tel: +253-35-2751 Fax: +253-35-6288 E-mail: [email protected] Website: www.banque-centrale.dj Egypt

MEDITERRANEAN SEA Dumyat- 2009 at a glance Bur- Sa'id Al-Iskandaryah- Le Caire Cairo Population (mn) 83.0 As-Suways Al-Jizah Population growth (annual %) 1.8 Official language Arabic

Currency Egyptian Pound (EGP) RED SEA EGYPT GDP (Current US$ bn) 167.4

GDP growth (annual %) 4.0 LIBYA Aswan- GDP per capita (Current US$) 2,016.8 Total Debt (US$ bn) 31.7

Total Debt/GDP (%) 18.9 SUDAN

CPI (annual %) 9.9 Bur- Sud- an- Exports of Goods and services (% of GDP) 29.4 Dunqulah Gross Official Reserves (in US$ bn) 31.9 Gross Official Reserves (in months of imports) 6.4 EGP / 1USD (Year end) 5.484

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-Term Local Currency Foreign Currency Fitch BBB- BB+ Moody’s Ba1 Ba1 S&P BBB- BB+

Source: Bloomberg

Summary

»» In 2005/06, the Government of Egypt embarked on an ambitious financial sector reform programme with African Development Bank and World Bank support to raise competitiveness and increase private sector involvement. »» The fixed income market in Egypt is not very diversified in terms of issuers and investors. »» The Ministry of Finance publishes indicative daily bond yields using four different maturity bonds: 2011, 2013, 2015 and 2018. The longest available maturity is 2025. »» Treasury bills are auctioned on a weekly basis »» The corporate bond market has issues with maturity up to eight years. »» Bloomberg and Reuters codes for market data: • Bloomberg: CBEG • Reuters page: 0#/EGCORP=CA. 44 Egypt

Monetary Policy and Money Market

Monetary Policy State. The CBE also conducts deposit auctions to absorb The main objective of the Central Bank of Egypt (CBE) is excess liquidity in the market. price stability. The overnight interest rate on interbank transactions is the main operational target of CBE’s open The Central Bank plans to adopt an inflation targeting market operations. The Monetary Policy Committee (MPC) policy in the near-medium term. This will further en- is responsible for setting this rate. In addition, a Coordi- hance the predictability and transparency of monetary nating Council was established in 2005 and its members policy in Egypt. include the Ministers of Finance, Planning and Investment, the CBE Governor and his two deputies, and six members with international expertise in economic, banking and financial affairs. The Coordinating Council determines monetary policy targets such that price stability objectives are harmonized with the general economic policy of the

Fixed Income Market

The fixed income market in Egypt is dominated by Govern- Treasury bills are issued for 91, 182, 259, 266, 273, 350, ment issuance. In recent years, the number of corporate 357 and 364 days. Treasury bill auctions are conducted issues in both securitized and non-securitized form has on a weekly basis through primary dealers. An issuance increased, but Government securities still represent the calendar is published quarterly by the Ministry of Finance, bulk of total bond issuances, as seen in the chart below. providing information on debt issuance and auctions.

Holdings by type of security as at 2008 (in percent) The Government also issues Treasury bonds of various tenors , with the longest outstanding maturity due in 2025. This 20-year bond had a 3.5 bid-to-cover ratio at issuance in 2005. Eurobonds, Securitized Bonds, 2% 14% Corporate Bonds, 4% The Government of Egypt also issues development bonds and housing bonds. These instruments raise financing capital for specific projects. They represent a very small share of the overall market. Government Bonds, 80% The graph below illustrates the Government securities yield curve.

Government securities yield curve as at 21 April Source: Egyptian Stock Exchange, Annual Report, 2008 2010

15

Despite the limited number of available instruments, the market offering is relatively sophisticated. Local inves- tors are exposed to various bond structures including amortizing, bullet, and callable structures with fixed and 12 floating coupons.

Government Securities As of March 2009, the Government had issued bonds 9 30-day 60-day 91-day 182- 273- 364- 3 5 7 with a cumulative value of EGP 9.2 billion and bills with day day day years years years a value of EGP 74 billion.1 Source: Central Bank of Egypt 1 Central Bank of Egypt, 2009. Egypt 45

Non-Government Securities Intermediaries The number of corporate issues available in Egypt is small Government bonds and bills are dealt by primary dealers. and fairly short-dated. The longest instrument has a ma- Primary dealers are underwriters in the primary market. turity of eight years (2017), as seen in the table below.2 They currently include 15 banks out of the 39 operating in Egypt. Given the limited offering, banks play a major role in the intermediation of corporate credit. As a result, there is Investors significant room for growth in corporate issuance. The investor base is narrow. Institutional investors have the predominant market share, accounting for 99% of List of non Government securities the total value traded of outstanding Government and 3 Bond Name Issue Matu- Issue Cur- corporate bonds. Furthermore, commercial banks are rity Value rency the most active institutional investor. (mn) Contact – 4th Issue Dec 08 Dec 13 39 L.E Social insurance funds and the Post Office are the largest Contact- 2nd Issue Dec 06 Dec 11 49 L.E savings institutions in the country. Egypt has two social Contact-3rd Issue Dec 07 Dec 12 170 L.E insurance funds, one for public and the other for private sector employees. In addition, there are more than 20 Egyptian Arab Land Aug 07 Aug 17 710 L.E Bank-Securitization insurance providers in Egypt. The social insurance and Bonds-2nd Issue pension funds, estimated at EGP 272 billion in 2008, are Egyptian Arab Land June 06 June 13 500 L.E invested in infrastructure projects, treasury-guaranteed Bank-Securitization bonds and National Investment Bank (NIB) bonds. Bonds-1st Issue Egyptian Securitiza- April Dec 12 267 L.E The participation of retail and foreign investors is still tion Company 08 negligible. El Ezz Stell Rebars- June 08 Dec 14 1,100 L.E 2nd Issue Secondary Market Golden Pyramids Aug 07 June 14 1,567 $ In the secondary market, primary dealers are market Plaza makers conducting transactions for their own accounts. Telecom Egypt – Feb 05 Feb 10 400 L.E They also act as brokers buying/selling securities on behalf 2nd Tranche of their clients. Telecom Egypt – 1st Feb 05 Feb 10 400 L.E Tranche Source: Website, Egyptian Stock Exchange, December 2009. 3 Egyptian stock exchange, data from Jan 2009 to Aug 2009 2 Bond issued by Al Taamer Securitization Company

Foreign Exchange Market

After more than a decade in a crawling-band regime, the market of up to 1 year, although most liquidity is within Egyptian Pound has followed a managed float since 2003. the 3-month tenor. The volume of transactions in the dollar interbank market The graph below provides historical levels of the EGP reached USD 19.4 billion during the period from July to against the USD. December 2009.4 Sales by public banks reached roughly 20% of the total volume of transactions, with purchases EGP per Unit of USD (Year End) at approximately 3%. Privately-owned banks’ sales and 8 purchases accounted for the remaining transactions.

Both the current account and capital account are liberalized. 7

An interbank spot and forward market is active onshore up to 1 year, but any conversion of EGP into hard currency 6 must be linked to commercial or investment transac- tions. There is a small offshore non-deliverable forward 5 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 4 Central Bank of Egypt Economic Review 2008/09 Source: Bloomberg 46 Egypt

Derivatives Market

The interest rates derivatives market is still at an em- swaps. Product offering consists mainly of FX swaps and bryonic stage. The CBE restricts the use of interest rate forwards, with maturities not longer than three years.

Regulation and Taxation

Regulation The offering of corporate bonds is subject to prior approval The Egyptian Financial Supervisory Authority (EFSA) from EFSA. There are various administrative/regulatory replaced the Capital Markets Authority in July 2009. The procedures associated with obtaining regulatory approval EFSA is responsible for supervising the non-bank financial for issuing and listing securities. institutions, instruments and markets. This includes the Capital Market, the Stock Exchange, all activities related Taxation to insurance services, mortgage finance, financial leasing, Interest on bonds listed in the Egyptian Stock Exchange factoring and securitization. is exempt from tax.

The legal framework of capital markets in Egypt is based Capital gains are not taxable, but accrued interest is sub- on several laws and regulations: the Capital Market Law ject to 20% tax. Interest on corporate bonds is exempt and its Executive Regulations, the CMA board of directors’ from taxes. decrees and Depository, the Central registry Law and its Executive Regulation, listing and delisting rules and the Egypt has tax treatries with the United States of America CASE membership rules5 and the United Kingdom. Investors from these markets are charged with a tax rate of 15% instead of the default The Central Bank of Egypt is responsible for overseeing rate of 20%. the banking system.

5 EFSA website

Clearing and Settlement

The settlement system is based on delivery versus pay- The settlement cycles are as follows: ment. A clearing house – Misr for Central Clearing, Deposi- tory and Registry – supports the settlement of equities, »» T+0 for securities traded by the Intra-day Trading corporate and Government debt that are traded on the System stock exchange. Treasury bills are cleared and settled by »» T+1 for Government bonds that are traded through the CBE. Primary Dealers System »» T+2 for all other securities

Egypt 47

Regulatory Contacts Central Bank of Egypt The Egyptian Exchange (EGX) 54 Elgomhoreya Street 4A, El Sherifien St., Postal Code 11513 11511, Cairo Egypt P.O. Box 358 Mohamed Farid, Downtown, Cairo Tel : +202 27702770/ 27701770 / 25976000 Tel: (202) 23928698 / 23921402 / 23921447 Emails: [email protected] Fax: (202) 23924214 Website: www.cbe.org.eg Website: www.egyptse.com

Eritrea

2009 at a glance Population (mn) 5.1

RED SEA Population growth (annual %) 2.9 Official language Tigrinya Currency Nafka (ERN) SUDAN ERITREA Mitsiwa GDP (Current US$ bn) 1.6 Asmera GDP growth (annual %) 3.6 GDP per capita (Current US$) 309.8 GULF OF ADEN ETHIOPIA Mekele Total Debt (US$ bn) 0.9 Aseb

Total Debt/GDP (%) 57.9 DJIBOUTI

CPI (annual %) 34.7 Bahir Dar Djibouti Exports of Goods and services (% of GDP) 3.4 Gross Official Reserves (in US$ bn) 0.1 SOMALIE Gross Official Reserves (in months of imports) 2.8 ERN / 1USD (Year end) 15.0000

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Summary

»» The fixed income market in Eritrea is in its infancy with very limited issuance, trading and sophistication. »» The Government of Eritrea issues Treasury bills out to 180 days with pricing fixed by the Central Bank of Eritrea. »» There is no auction of Government securities and no issuance of corporate bonds. 50 Eritrea

Monetary Policy and Money Market

The Central Bank of Eritrea implements monetary policy interbank money market trading liquidity, required re- with three instruments, namely open market operations, serves play a vital role as a monetary policy operating tool. the discount rate, and required reserves. Due to limited

Fixed Income Market Government Securities Treasury bills with maturities of 180 days are issued by the Eritrean Investment and Development Bank (EIDB) the Central Bank on behalf of the Government. These bills with 3 liaison offices, the National Insurance Corporation are not auctioned and the price is fixed by the Central of Eritrea (NICE) and Himbol Exchange and Financial Bank. The proceeds are used to finance the fiscal budget. Service – a financial auxiliary that provides money transfer and foreign exchange services. Non-Government Securities There are no corporate issuances in Eritrea. The banks are all majority-owned by the Government, while the National Insurance Corporation of Eritrea (NICE) Intermediaries was sold in 2004 to Eritrean investors and converted into So far, there are no distinct market makers, brokers or a privately held company. Created in 1991, NICE has 57 % primary dealers. of its business in the motor insurance sub-sector. While the Commercial Bank of Eritrea has correspondent bank- Investors ing relations with many international banks, no foreign The financial system of the country consists of the Bank financial institutions operate in Eritrea. of Eritrea (BE) which is the Central Bank, the Commercial Bank of Eritrea (CBE) with 17 branches, the Housing and Secondary Market Commerce Bank of Eritrea (HCBE) which has 10 branches, There is no secondary market trading in Treasury bills.

Foreign Exchange Market

The Eritrean Nakfa (ERN) is a conventional peg currency. The graph below provides historical levels of the ERN The Nakfa is pegged to the US dollar at a rate of ERN 15 against the USD. per 1 USD. A dual exchange rate system existed in the country and there was a substantial difference between ERN per Unit of USD (Year End) the official and parallel market rates until 2005. Official 15 transactions and other priority needs were conducted in the official market, while the vast majority of private transactions, including bona fide current account transac- 14 tions, were channelled through the parallel market. Since January 2005 the exchange rate structure is unified and only the official exchange market exists. Black market 13 trading in foreign currency is illegal and there are limits to possession and exchange of foreign currency. 12 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bloomberg Eritrea 51

Derivatives Market

There is no derivatives market.

Regulation and Taxation Regulation Taxation The banking and insurance sectors are regulated by the There are no taxes on the securities that are issued. Supervision Department of the Central Bank of Eritrea.

Clearing and Settlement

The Accounts Department of the Bank of Eritrea carries securities. Securities are held in physical form only. out the clearing and settlement function for Government

Regulatory Contacts Bank of Eritrea P.O.Box 849, Nakfa Street Asmara, Eritrea Tel: +291-1-123033/123036 Fax: +291-1-122091 E-mail: [email protected] Ethiopia

2009 at a glance Mekele Population (mn) 82.8 SUDAN GULF OF ADEN Gonder Population growth (annual %) 2.6 DJIBOUTI Bahir Dar Djibouti Dese Official language Amharic Debre Markos

Dire Dawa SOMALIA Currency Birr (ETB) Hargeysa Addis Ababa Akaki Beseka Harer Nazret GDP (Current US$ bn) 29.9 Jima Asela GDP growth (annual %) 6.2 Awasa ETHIOPIA GDP per capita (Current US$) 361.7 Total Debt (US$ bn) 4.4

KENYA ATLANTIC Total Debt/GDP (%) 14.7 UGANDA OCEAN CPI (annual %) 35.3 Exports of Goods and services (% of GDP) 8.3 Gross Official Reserves (in US$ bn) N/A Gross Official Reserves (in months of imports) N/A ETB / 1USD (Year end) 12.7029

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» The Government securities yield curve has the longest tenor at 182 days. »» T-bill auctions are announced two weeks before auction. »» Significant negative real interest rates affect the demand for Government securities. »» Government bonds are not issued regularly and are for specific purposes/projects. »» The Government is conducting studies under the Financial Sector Capacity Building Project with a view to de- veloping a strategy and regulatory framework for the development of capital markets. 54 Ethiopia

Monetary Policy and Money Market Monetary Policy Money Market The National Bank of Ethiopia (NBE) is responsible for The interbank money market in Ethiopia is not well de- monetary policy management and this function is dis- veloped; there are very few participants and the volume charged in close coordination with the Ministry of Finance of transactions is small. As an illustration, there were no & Economic Development (MoFED) to ensure coher- interbank money market transactions during the third ence between fiscal and debt management policies and quarter of financial year 2008/09 and the first quarter monetary policy. A high level Committee comprising the of financial year 2009/10. The interbank money market National Bank of Ethiopia and MoFED has been set up was established in 2001. Since then, the market has been to monitor liquidity requirements. The goal of monetary highly illiquid, and as a result, it does not discharge its policy is to achieve price stability and foster growth function of setting benchmark interest rates effectively. within a stable macro environment. The operating target This, in turn, limits the range of indirect instruments for monetary policy is money supply. There is a need for liquidity management. The limited development of to shift towards more market-oriented instruments for the interbank money market has partly been caused by monetary policy through deepening of the T-bill market, excess liquidity in the banking sector. developing a bond market, market-determined interest rates and increasing competition in the banking sector.

Fixed Income Market

Government Securities held ETB 1.7 billion (approx 20.7% of the outstanding Treasury bills are issued for 28-, 91 and 182-day tenors. volume) worth of T-bills. There are 12 insurance compa- Auctions are held every fortnight and access to T-bills nies which together held ETB 86 million of T-bills. The is open to banks, non-bank institutions, and the public. Social Security Agency held ETB 2,9 billion and public enterprises held ETB 3.2 billion in T-bills. Government bonds are issued only for specific purposes, hence the irreguar issuance pattern and the absence of a The dominance of banks in T-bill auctions appears to be formal Government bonds market. As of 31 March 2009, diminishing due to enhanced participation of non-bank ETB 8.1 billion worth of Treasury bills was outstanding. institutions in the T-bills market. As of 31 March 2009, non-bank investors held ETB 6.4 billion in Treasury bills, Non-Government Securities which was 79.3% of the outstanding volume, up from The Ethiopian market has very few corporate bond issues. 33.1% a year before. Large public enterprises, such as the Ethiopian Electricity Power Corporation (EEPCO) and the Ethiopian Telecom- The National Bank of Ethiopia is a significant investor in munications Corporation (ETC), have issued corporate Government securities. The amount of bonds held by the bonds in recent years to finance infrastructure invest- NBE amounted to ETB 9.2 billion as of 31 March 2009. ments. In 2009, EEPCO issued a bond with a face value of ETB 1.6 billion. Foreign investor participation is constrained by existing laws which do not allow foreign investors to invest in Intermediaries Government securities. Treasury bills are issued to investors who hold them to maturity. There are no intermediaries in the issuance proc- Retail investors apply directly to the NBE for investment ess and the secondary market. Once the instruments are in Government securities and hold individual accounts on purchased from primary sources, Government and corpo- the central depository. The minimum bidding amount for rate bonds are kept until maturity. There are no brokers. TBs is ETB 50,000 (approximately USD 4,000).

Investors The banking sector is comprised of 13 banks and dominat- ed by the Commercial Bank of Ethiopia, the state-owned commercial bank. As of 31 March 2009, commercial banks Ethiopia 55

Foreign Exchange Market

The Ethiopian Birr (ETB) is a managed floating currency. The interbank foreign exchange market is rather small, Before May 1993, the Birr was pegged to the US Dollar and with the market being dominated by the state-owned from May 1993 to July 1995 there was a dual exchange Commercial Bank of Ethiopia. rate system, the official and auction rates. The rates have now been unified and a marginal rate (official rate) is The graph below provides historical levels of the ETB determined through weekly auctions. All transactions in against the USD. foreign exchange must be carried out through authorized dealers under license from the National Bank of Ethiopia. ETB per Unit of USD (Year End) 15 All payments abroad require licenses issued by the Con- troller of Exchange. Furthermore, exports are licensed by the Controller to ensure the surrender of foreign exchange 12 proceeds, and shipments require permits issued by the same office. Foreign exchange payments, transfers and accounts must adhere to capital account restrictions that 9 are in place.

6 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bloomberg Derivatives Market

There are no interest rate or currency derivatives in Ethio- pia.

Regulation and Taxation Regulation Taxation The National Bank of Ethiopia regulates the banking and Interest income on Government securities is exempt non-bank sectors of the economy, including the insurance from tax. companies. All aspects of the capital markets are also under the supervision of the NBE.

Clearing and Settlement

The National Bank of Ethiopia manages the clearing and settlement system. The infrastructure for electronic clear- ance and settlement is not well developed. 56 Ethiopia

Regulatory Contacts National Bank of Ethiopia P. O. Box 5550 Tel: 251 11 551 7430 Fax: 251 11 551 4588 E-mail: [email protected] Website: www.nbe.gov.et

The Gambia

2009 at a glance Kaolack Population (mn) 1.7 Population growth (annual %) 2.7 SENEGAL Tambacounda Official language English ATLACTIC OCEAN GAMBIA Currency Dalasi (GMD) Banjul

GDP (Current US$ bn) 0.6 SENEGAL GDP growth (annual %) 3.3 GDP per capita (Current US$) 323.4 Total Debt (US$ bn) 0.3 Total Debt/GDP (%) 57.4 CPI (annual %) 5.5 Exports of Goods and services (% of GDP) 49.1 Gross Official Reserves (in US$ bn) 0.2 Gross Official Reserves (in months of imports) 6.4 GMD / 1 USD (Year end) 26.75

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: AfDB, Bloomberg

Summary

»» The Government securities yield curve has a longest maturity of 3 years. »» Benchmark points and issues along the Government securities yield curve are 91-day, 182-day, 364-day and 3-years. »» Sharia-compliant instruments, Sukuk-Al-Salam, are also issued as monetary policy instruments. »» Gambian authorities completed the preparation of a medium-term debt strategy (MTDS) in September 2009. »» Limited secondary market trading. 58 The Gambia

Monetary Policy and Money Market

The Central Bank of Gambia (CBG) focuses on reserve Given the higher costs associated with issuance of T-bills money as the operational target to contain growth in for sterilization of donor-induced inflows under budget broad money and inflation. Other important tools for support, the current strategy is to prioritize foreign ex- monetary policy implementation are the rediscount rate change sales as the monetary policy tool. and sales of T-bills.

Fixed Income Market Government Securities Investors Gambia Treasury Bills are issued in tenors of 91 day, The banking sector has benefited from recent regional 182 day and 1 year. Access to T-bills is open to primary expansion by banks from West and Central Africa. This dealers only, except for subscriptions of GMD 5 million has led to an increase in the number of banks in Gambia and over. Auctions are held weekly on a Wednesday and from 8 in 2007 to 12 at the end of March 2009, comprising settlement is done on a T+3 cycle. 1 Islamic bank and 11 conventional commercial banks. Commercial banks are the main investors in Government Government Sukuk-Al-Salam (SAS) is a Sharia-compliant securities as can be seen from the chart below. Government security issued by the Central Bank on behalf of the Government. Two parties agree to trade a notional The insurance sector has 11 insurance companies operating asset spot and at predetermined and prepaid prices. The in the country, 8 of which offer only non-life products, Central Bank sells gold to issue SAS, which it buys back while 3 offer both life and non-life products. at a predetermined price in the future. Tenor is 91-day and the minimum amount for investment in SAS is GMD Holdings by category of investor as at June 30, 25,000 and is in multiples of GMD 5,000. 2009 (in percent)

The 3-year Gambia Government bond had its maiden

issue on 24 February 2010. Access to T-bond auctions Others Pension funds is open to all investors and settlement is done on a T+1 14% 17% cycle. The prospectus indicates quarterly issuance; the minimum bid is initially GMD 5 million with multiples of GMD 50,000 thereafter.

Commercial Banks The graph below illustrates the Government securities yield 69% curve. There was no available data for the 3 year bond.

Government securities yield curve as at March 16, 2010 Source: Central Bank of The Gambia 20

Primary Market 15 Treasury bills are primarily used to conduct open mar- ket operations. They are issued on a weekly basis, on a Wednesday, or as may be determined by the CBG, which 10 publishes a tentative issuance calendar. Current initiatives under consideration are to adopt fortnightly auctions and cease weekly auctions. 5 91-day 182-day 364-day 91-day (SAS) Since 2002, a weekly auction of Treasury and Central Bank 15 july 2008 9 june 2009 16 march 2010 bills replaced the fotnightly auction system. The Central Source: Central Bank of The Gambia The Gambia 59

Bank determines which bids to accept after closing time. Secondary Market Bills are sold through multiple price auctions and suc- There are eleven approved primary dealers in Government cessful competitive bidders are awarded Treasury bills at bills auctions. Trading takes place over-the-counter and yield that equals the price they submit, and those with settlement is on a T+1 cycle. There is limited secondary non-competitive bids are awarded the securities at the market trading in Gambia Treasury bills. weighted average clearing price.

Foreign Exchange Market

The CBG implements a floating foreign exchange policy The graph below provides historical levels of the GMD while limiting interventions to smooth market volatility. against the USD. The foreign exchange market is an avenue for monetary policy intervention and requires that there are sufficient Average GMD to the USD reserves to meet the import cover and sterilization. The 30 comfortable level of international reserves, achieved largely by the SDR allocation, strengthens the CBG’s position to be able to cushion the economy against external shocks.

25 Residents and non-residents may hold foreign exchange accounts and repatriation of profits by non-residents and foreign-owned firms is permitted.

20 2004 2005 2006 2007 2008 2009

Source: Central Bank of The Gambia

Regulation and Taxation Regulation Taxation The CBG is the regulator of the banking and insurance There are no withholding taxes for either residents or sectors. nonresidents. Treasury bills are not taxable; however, there is a 3% fee for rediscounting bills before maturity. Tax treaties exist with Norway, Sweden, Taiwan and the United Kingdom.

Clearing and Settlement

Clearing and settlement for T-bills and T-bonds is at a T+1 cycle and investors hold individual accounts for securities holdings with the central registry at the Central Bank. 60 The Gambia

Regulatory Contacts The Central Bank of the Gambia No. 1/2 Ecowas Avenue, Banjul, The Gambia Tel: +220-4-228103/227633 Fax: +220-4-226969 E-mail: [email protected] Website: http://www.cbg.gm Ghana

2009 at a glance Bobo-Dioulasso Population (mn) 23.8 BENIN Population growth (annual %) 2.1 Official language English Tamale Currency Cedi (GHS)

IVORY COAST GDP (Current US$ bn) 15.5 TOGO GDP growth (annual %) 4.5 GDP per capita (Current US$) 649.9 GHANA Total Debt (US$ bn) 7.3 Kumasi Lomé Total Debt/GDP (%) 47.1 Abidjan Accra CPI (annual %) 15.1 Sekondi-Takoradi ATLANTIC OCEAN Exports of Goods and services (% of GDP) 46.3 Gross Official Reserves (in US$ bn) 2.6 Gross Official Reserves (in months of imports) 2.7 GHS / 1USD (Year end) 1.4317

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch B+ B+ Moody’s Not rated Not rated S & P B+ B+

Source: Bloomberg

Summary

»» Weekly auction of Government securities. »» The Government securities curve has a longest maturity of 3 years. »» Full automation of trading processes on the Ghana Stock Exchange (GSE) accompanied by a GSE Central Securi- ties Depository (GCSD) to record all security holdings in electronic format. »» Bloomberg and Reuters codes for market data: • BOGH • AFHO 62 Ghana

Monetary Policy and Money Market

The Bank of Ghana (BoG) has gone through several mon- subsequently informs the Committee’s determination of etary management frameworks aimed at maintaining price the level of the key policy rate, the prime rate, which sets stability in the Ghanaian economy. As part of the policy the stance of monetary policy. The MPC process gradually measures to improve monetary policy formulation further, paved the way for the formal adoption of Ghana’s Inflation a new BoG Act was enacted in 2002. This regulatory Targeting (IT) monetary policy framework in May 2007. framework refocused the main objective of the Bank to its core function of promoting price stability and guarant- The prime rate serves as the main rate at which the ing the operational independence of the Central Bank. Central Bank transacts business with the commercial banks. As the main operational instrument, the prime rate The Act also established a Monetary Policy Committee also influences the short-term money market rates, the (MPC) to formulate monetary policy. The MPC was estab- medium-term rates for open market operations, and the lished in 2002 and meets bi-monthly to analyze a broad deposit money banks lending and deposit rates. At the range of economic data on all sectors of the economy. This operational level, the Repo rate is linked to the prime rate.

Fixed Income Market

Government Securities The Bank of Ghana (BoG) issues bills with maturities Weekly auctions are held by the Wholesale Auction Com- of 2 weeks, 1 month and 2 months intermittently for mittee (comprising the Bank of Ghana, the Ministry of monetary policy purposes. Finance, the Controller and the Accountant General’s Department) on Fridays for the sale of Government bills Government securities yield curves as at 30 June and bonds to primary dealers (PDs). Issuance of Treasury 2009, 30 June 2008 and June 30 2007 Yield % bills is via a multiple price auction, while Treasury notes 30 are issued via a uniform price auction. The minimum bidding amount is approximately GHS 10,000 and bids 25 are submitted on either a competitive or non-competitive basis. Approved bids are accepted and equivalent yield 20

rates are paid for by PDs. 15

Treasury bills auctions are held weekly on Fridays by the 10 Bank of Ghana. The tenors issued are 91day, 182-day and 5 1-year Treasury note. Access to Treasury bills is open to 91-days 182-days 364-days 2 yr- 3 yr- 5 years the public through licensed primary dealers and settle- fixed fixed Tenor ments occurs at T+1. June 30, 2009 June 30, 2008 June 30, 2007

Government bonds are issued for 2 and 3-year tenors, with Source: Central Bank of Ghana both fixed and floating rate options. The 2-year floating rate note has an interest rate that is tied to the 91-day Maturity profile of Government of Ghana Treasury bill rates, while the 3-year floating rate has an securities as at June 30, 2009

interest rate spread over the 182-day T-bill rate. The 5-year 2500 bond was issued by the Government in early 2007, and 2000 is the Government security with the longest term. The graphs opposite illustrate the Government securities yield 1500 curve and the maturity profile of Government issuance. 1000

500 Pre-auction information on the desired financing target, 0 along with the desired split between short and medium- 0 to 1 year 1 to 3 years 3 to 5 years term instruments, is provided a week in advance. Source: Central Bank of Ghana Ghana 63

Non-Government Securities Retail investors are very active investors in Government There are two listed corporate bonds on the Ghana Stock securities and their holdings as of 30 June 2009 were 19%. Exchange issued by two financial institutions, namely, The Central Depository Act 2007 requires all investors to HFCBank and Standard Chartered Bank (Gh.) Ltd. hold individual accounts at the central depository. They may submit bids for Government securities through pri- Intermediaries mary dealers or in the secondary market through brokers The securities market in Ghana has licensed approxi- on exchange. mately 34 primary dealers, which includes banks and non-bank financial intermediaries such as discount houses Holdings by category of investor as at June 30, and brokerage firms. Bids may be submitted either on a 2009 (in percent) competitive or non-competitive basis through primary dealers only.

Individuals Investors 19% The banking sector consists of 27 licensed banks. Com- Central Bank mercial banks held 27.4% of outstanding Government Foreign Investors 40% securities as of 30 June 2009, as seen in the chart opposite. 8%

Commercial Banks The BoG holdings of Government securities was GHS 2.1 27% billion as of August 2009, which represented 39.9% of the total outstanding volume.

Pension Funds 5% Holdings of Government securities by insurance companies Insurance Cos. 1% amounted to GHS 48.5 million, while Social Security and National Insurance Trust (SSNIT) Pension Fund holdings Source: Central Bank of Ghana were GHS 0.3 billion as of August 2009, representing 0.9% and 5.1% respectively of the total. The minimum capital requirement for an insurance company has been raised Secondary Market to the Ghana Cedi equivalent of USD 1 million. Secondary market trading of Government securities used to take place over-the-counter through a network of pri- The Government securities holdings by firms and institu- mary dealers. However, in response to the shortcomings tions, including fund managers, was GHS 0.3 billion as of of an illiquid bond market, the Government listed all August 2009, representing 5.6% of the total. outstanding 2 and 3-year bonds, both floating and fixed, on the stock exchange in 2006. The 5-year bond was also In December 2006, the new Foreign Exchange Act 2006 listed on the exchange in 2007 in a bid to enhance second- came into effect, allowing foreign investors to bid for secu- ary trading activities to increase liquidity. The secondary rities issued by the Government of Ghana. Non-residents aim of the Government was to provide benchmark securi- are allowed to invest in the long-end of the domestic ties for corporate issuers and deepen the bond market. capital market, with tenor of three years and above. To The listing also provides enhanced access for investors facilitate this, non-residents are permitted to maintain to bid for securities, rather than submitting bids through foreign currency accounts with domestic banks, which licensed primary dealers. can be credited with transfers in foreign currency from abroad or other foreign currency accounts. This develop- ment resulted in a strong foreign investor participation in the Government’s 5-year bond issue in January 2007. 64 Ghana

Foreign Exchange Market

The enactment of the Foreign Exchange Act 2006, paved The graph below provides historical levels of the GHS the way for partial liberalization of the capital account. against the USD. Ghana operates a flexible exchange rate regime, with occasional Central Bank intervention in the event of GHS per Unit of USD (Year End)

excessive short-term volatility. 1,5

The exchange rate is determined through the interbank foreign exchange market on the basis of average rates as reported by authorized dealers and foreign exchange 1,2 bureaus on a daily basis. The Central Bank occasionally participates in the interbank market to smooth foreign exchange liquidity conditions.

The 1994 Investment Code guarantees the free transfer- 0,9 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 ability of dividends, loan repayments, licensing fees and Source: Bloomberg capital. Residents and non-residents may hold foreign exchange accounts in Ghana.

Derivatives Market

Ghana does not have an interest rate or currency de- liquidity in the foreign exchange market may lead to the rivatives market. In the medium to long term, enhanced development of foreign exchange derivative instruments.

Regulation and Taxation

Regulation sibilities for the insurance sector. The regulators’ overall The Legal Framework underpinning operations of the objective is to ensure effective administration, supervi- capital market is embodied in the Securities Industries sion, regulation, monitoring and control of the business Law and the Securities Amendment Act . These laws of insurance, to protect insurance policyholders and the authorize the Securities and Exchange Commission (SEC) insurance industry. as the apex supervisory and regulatory body of securities market operations in Ghana. Custodians are appointed to hold the certificate of title to any security issued in Ghana. They are licensed and The Bank of Ghana has overall supervisory and regulatory regulated by the Securities and Exchange Commission authority in all matters relating to banking and non-bank (SEC). Currently, there are four licensed custodians. financial business with the purpose of achieving a sound and efficient banking system in the interest of depositors Taxation and the economy as a whole. A withholding tax rate of 10% is applicable to interest income for resident corporations. A temporary exemption The pension sector has undergone significant reforms on capital gains on securities listed on the Ghana Stock that will be fully implemented in 2010. The supportive Exchange is also in force and expected to last until 2010. legal framework i.e. the National Pensions Act, 2008 will Ghana has double tax treaties with the United Kingdom, establish an independent National Pension Regulatory France, South Africa and Italy. Interest paid to a non- Authority (NPRA) to regulate, supervise and monitor resident investor in bonds issued by the Government of both private and public pension schemes in the country. Ghana is exempt from tax. Capital gains made on disposal of listed securities are tax exempt until November 2010. Established by the Insurance Act, 2006, the National Insurance Commission (NIC) provides oversight respon- Ghana 65

Clearing and Settlement

The Bank of Ghana has established an efficient and safe The GSE Securities Depository Company Ltd (GSD) payment and settlement system. A modern payments and provides the platform to facilitate electronic clearing, settlement infrastructure that includes a Real Time Gross settlement and electronic book-entry of ownership of Settlement System (RTGS), a Central Securities Depository individual securities, enhancing the transfer of traded (CSD), as well as a Cheque Codeline Clearing with Cheque securities and enabling easy accessibility of securities Truncation System was developed to enable secure and information by type, tenor, holder and currency cat- instantaneous settlement of payment orders, clearing and egorization in a more efficient manner. settlements of equity and debt instruments, and to record holdings of all securities (Government securities, equities The implementation of a real time gross settlement and corporate bonds etc.) in electronic form. system, the Ghana Inter-bank Settlement system, has provided a platform for prompt settlement of Govern- The establishment of a National Switch (e-zwich) in 2008 ment securities transactions generated by the Central provided a common platform for all payment transac- Securities Depository (CSD). Settlement of Government tions conducted by both the “banked” and “unbanked” securities is at T+1 and through Central Bank clearing. segments of the population, thereby further enhancing Custodial accounts are held on an individual basis. Ghana’s payments systems.

Regulatory Contacts Bank of Ghana Ghana Stock Exchange P. O. Box GP 2674, Accra – Ghana P. O. Box 1849, Accra – Ghana One Thorpe Road, High Street, Accra – Ghana 4th Floor, Cedi House, Accra – Ghana Tel:+233-21-666174-6/666361-5/666902-8/666921-5 Tel: +233-21-669908/14/35, 664715 Fax: +233-21-662996 Fax: +233-21-669913 E-mail: [email protected] Website: www.gse.com.gh Website: www.bog.gov.gh Ghana National Insurance Commission Securities and Exchange Commission P. O. Box CT 3456, Accra—Ghana P. O. Box CT 6186, Cantonments, Accra – Ghana, Insurance Place, Independence Avenue, Accra – Ghana No. 30, 3rd Circular Road, Cantonments, Accra – Ghana, Tel: +233-21-238300-1 Tel: +233-21-768970-2 Fax: +233-21-237248 Fax: +233-21-768984 Email: [email protected] Website: www.secghana.org Website: www.nicgh.org

Guinea

2009 at a glance GAMBIA

Population (in millions) 10.0 SENEGAL MALI Population growth 2.4 Bamako Official language French Currency Guinean Franc (GNF) GUINEA Fria GDP (Current US$ bn) 4.5 Kankan Kindia GDP growth (annual %) 0.7 Conakry

SIERRA GDP per capita (USD) 448.7 LEONE Freetown External Debt (US$ in bn) 2.9 Nzérékoré

External Debt/GDP (%) 63.6 IVORY COAST ATLANTIC OCEAN CPI annual % 12.3 LIBERIA Monrovia Exports of Goods and services (% of GDP) 21.1 Gross Official Reserves (in US$ bn) 0.2 Gross Official Reserves (in months of imports) 1.2 GNF / 1USD (Year end) 4,997

Source: AfDB, Bloomberg, BCRG

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» The Government securities yield curve extends to 182 days. »» Investor base; dominated by commercial banks. »» Weekly Auctions of Treasury bills. »» No secondary market activities. »» Reform of the Central Bank aimed at achieving more autonomy in the designing and implementation of mon- etary policy. »» Modernization of payment systems in 2009 is aimed at fostering financial sector development. 68 Guinea

Monetary Policy and Money Market Monetary Policy Money Market Established in 1960, the Banque Centrale de la République The main instruments in the Guinean money market de Guinée (BCRG) formulates and implements monetary are Treasury bills (T-bills) and the “Titres de Regulation policy through open market and Repo operations. BCRG’s Monétaire” (TRM). However, due to the low level of main instruments are the “Titres de Regulation Monétaire” inflation recorded during the first four months of 2009 (TRM), T-bills and minimum reserve requirements for banks. (2.2% on average compared to the single digit inflation target of end of year), this reduced the necessity to mop Following policy reforms implemented in 2009, which up liquidity. T-bills and TRMs issues were suspended strengthened the autonomy of the BCRG, inflation target- in May and June 2009, respectively. As a result, the ing is now the main policy objective. The BCRG uses the only market activity at present is the redemption of monetary base as an operating target. existing debt.

Advances to Treasury are strictly limited to the statutory threshold of 5% of the average tax revenue for the last three years.

Fixed Income Market Government Securities Investors Ordinarily, the fixed income market comprises mainly Nine commercial banks and four insurance companies Treasury bills (“Bons du Trésor” – BTD), with maturities are the main primary dealers of T-Bills and TRM. As of ranging from 14 to 182 days. They are issued by the Na- June 2009, commercial banks held more than 80% of the tional Treasury on a weekly basis with tenors of 14, 28, outstanding securities, as seen in the chart below. 42, 91 and 182 days. Secondary Market The graph below shows the fluctuation in the Guinean There is no active secondary market. The outstanding Government yields curves over the last three years. A BTD was GNF 310 billion, GNF 371.8 billion and GNF 830 pronounced drop in yields is visible across all maturities billion in December 2006, 2007 and 2008 respectively. At in June 2009. the end of June 2009, the outstanding debt was GNF 693 billion with maturities ranging from 42 days to 182 days. Government securities yield curve as at 30 June 2009, 2008 and 2007 Holdings by category of investor as at June 30,

25% 2009 (in percent)

20%

Others, 15% 20%

10% 28-day 42-day 91-day 182-day

June 30, 2009 June 30, 2008 June 30, 2007 Commercial Banks, 80% Source : Banque Centrale de la République de Guinée (BCRG)

Non-Government Securities There is no corporate debt securities market in Guinea; Source : BCRG information note, June 2009 commercial banks and insurance companies remain the main source of financing for private entities.

Guinea 69

Foreign Exchange Market

The Guinean Franc (GNF) is a free-floating currency. The The graph below provides historical levels of the GNF exchange rate is determined by the FX interbank market. against the USD. The GNF was stable at around GNF 1910 to the dollar until early 2004, after which it depreciated to GNF 4500 GNF per Unit of USD (Year End) to the dollar by the end of December 2005 and to GNF 6000 4697 as of June 2009.

After the foreign exchange policy reforms implemented in 2009, the new exchange rate policy aims to gradually 5000 rebuild reserves to meet at least three months of imports coverage. Subject to a valid Certificate of Capital Importa- tion (CCI), interest and capital gains realized by foreign investors can be fully repatriated. 4000 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: BCRG annual report 2008 & June 2009 information note

Derivatives Market

There is no derivatives market in Guinea.

Regulation and Taxation Regulation Taxation The Central Bank supervises the financial sector which Foreign and local investors are treated equally in accord- comprises 13 commercial banks, 9 microfinance institu- ance with the tax laws in effect. There is no difference tions, and 5 insurance companies. in tax rates applied to securities investments by local or foreign investors.

Clearing and Settlement

The Central Bank is the clearing and settlement house, as well as the central depository for securities.

Regulatory Contacts Banque Centrale de la Republique de Guinée B.P 692, Conakry, Guinée Boulevard du Commerce, Commune de Kaloum, Conakry, Guinea Tel: +224-30412651 Fax:+224-30414898 Website: http://www.bcrg-guinee.org Kenya

2009 at a glance

Population (mn) 39.8 SUDAN ETHIOPIA Population growth (annual %) 2.6 Official language English/Kiswahili UGANDA Currency Kenya Shilling (KES) Kitale KENYA SOMALIA GDP (Current US$ bn) 41.8 Kampala Kakamega Kisumu Nakuru GDP growth (annual %) 2.9 Embu Thika GDP per capita (Current US$) 1,051.7 Nairobi Total Debt (US$ bn) 7.3 TANZANIA Total Debt/GDP (%) 17.5 Mombasa CPI (annual %) 17.8

Exports of Goods and services (% of GDP) 21.3 INDIAN OCEAN Gross Official Reserves (in US$ bn) 2.9 Zanzibar Gross Official Reserves (in months of imports) 3.2 KES / 1 USD (Year End0 75.8

Source: AfDB, CBR

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency

Fitch BB- B+

Moody’s Not rated Not rated

S & P B B

Source: Bloomberg

Summary

»» The Government securities yield curve extends to 20 years with six benchmark points developing along the curve. »» Growing diversified investor base with increased presence of fund managers and foreign investors. »» Strategic target of keeping Treasury bonds to 70% of domestic debt versus 30% for Treasury Bills. »» Settlement cycle is T+1 for the primary market and T+3 for the secondary market. »» Bloomberg and Reuters codes for market data: • KENGB Kenya Government bonds • KENTB Kenya Treasury bills • KE3MTB= Treasury bill yields • 0#KETSYSTR= Kenya Bond pricing • KES= KES1= Shilling spot rates • KESF= <0#KESF=> Shilling forward rates 72 Kenya

Monetary Policy and Money Market

Monetary Policy bi-monthly, unless there is an extraordinary event that The Central Bank of Kenya (CBK) follows a monetary requires earlier intervention. aggregates targeting framework, namely reserve money targeting. The instruments used to achieve periodic targets Money Market are open market operations through vertical Repos/Reverse The most frequently used money market benchmark Repos. The Central Bank Rate (CBR) was introduced to is the 91-day (3-month) Treasury bill . The 44 member signal the monetary policy stance. An East African regional interbank money market activity is concentrated at the seminar held in Nairobi in March 2009 recommended short end, mainly the overnight market, which sees an the introduction of a Modified Reserve Money Target average volume of USD 185 million daily. There are 30 framework as a step towards inflation targeting, but no unit trusts operated by commercial banks, insurance formal commitment has been annouced. The Monetary companies, investment banks and Fund Managers offer- Policy Committee reviews monetary policy decisions ing Kenya Shilling Money Market Funds.

Fixed Income Market Government Securities Non-Government Securities Treasury bills are issued by the Central Bank of Kenya on The commercial paper market has been dormant for the behalf of the Government with tenors of 91, 182 and 364 last three years due to direct funding and syndication by days. The 91-day and 182-day bills are issued weekly in the commercial banks to prospective short-term corporate alternate weeks, while the 364-day bills are issued twice issuers. The corporate bonds market is developing with a month. The auctions are Dutch multiple price auctions. new issuers continuously coming to market. As at end 2009, the market had 17 issues by 11 issuers with a total Treasury bonds are issued in tenors of 1, 2, 5, 10, 15 and face value of KES 45 billion. The dominant issuing sector 20 years. Multiple price auctions are held once a month is the banking sector with 6 issues, while the largest issue to roll over debt, and finance fiscal budget and infrastruc- is Kengen PIBO which has a face value of KES 25 billion. ture projects. Of the 17 issues, 9 were floating rate with a total face value of KES 6.6 billion, while 8 issues with a face value The graph below illustrates the Government securities of KES 38.3 billion were fixed rate. The pricing of the yield curve at specific dates. floating issues is based on the 91-day or 182-day Treasury bill, There is one issue by a parastatal (quasi Government Government securities yield curve as at 30 June agency) valued at KES 25 billion. There are no municipal 2007, 2008 and 2009 bonds outstanding as of year end 2009.

15% Intermediaries Current rules require that all bonds are traded on the 12% Nairobi Stock Exchange. The market does not cater for over-the-counter trading and therefore brokers must be engaged to finalize any transaction. So far, there are no 9% distinct market makers or primary dealers. However, plans are underway to develop a model that includes market makers. The Nairobi Stock Exchange has also approved 6% plans to introduce the Authorized Fixed Income Securities 91 182 364 2 3 5 10 12 15 20 day day day years years years years years years years Dealers. to trade fixed income instruments. June 30, 2009 June 30, 2008 June 30, 2007 Investors Source: Central Bank of Kenya All 44 commercial banks and 2 mortgage companies participate in both the Government and corporate debt market. Locally-owned banks number 33, while 13 are foreign-owned. Kenya 73

As of 30 November 2009, banks held 53% of the KES Thursday, with the result announced the same day. The 520.8 billion outstanding securities. amount to be offered at the next auction is also announced alongside the results as well as any upcoming redemption. The Pension sector in Kenya has experienced significant Minimum face value is KES 100,000 with any additional growth following the enactment of the Retirement Ben- amounts in multiples of KES 50,000. An Auction Manage- efits Act establishing the Retirement Benefits Authority. ment Committee (AMC) meets every Thursday at 16.00 Pension funds have become more dominant as inflows hours to conduct the auction and determine successful and asset sizes have grown. This KES 270 billion sector bidders. After considering all received bids, both competi- held about 28% of outstanding Government securities as tive and non-competitive, the AMC arrives at a cut-off rate at end June 2009. based on amounts advertised. The successful weighted average rate derived from competitive bids is applied to Other investor categories are less dominant, with the 42 all non-competitive bids and is published with the rest of member Insurance sector holding 11.3% of all outstand- the results in daily newspapers and on the CBK website. ing Government securities. Retail investors access the markets, both Government and corporate, directly and Secondary Market through mutual funds. Minimum entry amounts allow Current trading rules require trading orders for listed retail investors to easily participate. Direct retail investors securities to be placed by stockbrokers duly licensed by account for approximately 1.7% of outstanding Govern- the Capital Markets Authority. The NSE has introduced ment securities. Foreign investor holdings are not easily an ATS that is linked to the CSD at the Central Bank of quantified since they invest indirectly through the banking Kenya. All trades have to be transacted through the ATS. sector and fund managers. Trading numbers and volumes increased tremendously during 2009, with over 1900 trades worth KES 107 billion Holdings by category of investor as at June 30, transacted during the year. Trades have been done across 2009 (in percent) the whole Government securities yield curve.

Individuals, 1.63% Any other, Quoted spreads for the bills and bonds are typically 50 6.34% basis points. Pre-trade price discovery is through contact-

Pension Funds, ing counterparties in the market, while post-trade price 27.35% discovery is from NSE reports. The day-count convention for bonds is actual/364 and actual/365 for bills.

Commercial Insurance Banks, Trend in secondary market trading companies, 53.38% 11.29% Billions of KES 120

100

80

Source: Central Bank of Kenya 60

Primary Market 40 The primary market for Government securities is open to 20 all investors with accounts at the CBK Central Securities 0 Depository (CSD). Treasury bill auctions are held every 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Nairobi Stock Exchange

Foreign Exchange Market

The Kenyan Shilling (KES) is a free-floating currency that The daily average inflows and outflows in foreign exchange is fully liberalized and convertible. There are no restric- transactions approximate USD 0.9 billion. However, on tions on transactions relating to the current and capital average, the minimum transaction amount in the interbank accounts and no foreign exchange controls. Residents FX market is USD 0.25 million and the average transaction and non-residents may hold foreign exchange accounts. size is USD 0.5 million. 74 Kenya

The graph below provides historical levels of the KES KES per Unit of USD (Year End) against the USD. 80

70

60 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bloomberg

Derivatives Market

The market has had a limited number of interest rate regular; consequently there is limited data available. Tenors swaps, cross currency swaps and currency forwards. have typically not exceeded 6 months for interest rate Swaps on FX are often used in the interbank market for swaps. Cross currency swaps can be structured for longer overnight borrowing for liquidity management. Interest period of up to 5 years. rates swaps are mainly among banks and are not very

Regulation and Taxation

Regulation issued by the Government or parastatals. All conventional The CBK, Capital Markets Authority, NSE and the Central Treasury bonds, Treasury bills and corporate bonds at- Depository and Settlement Corporation Acts play a role tract withholding tax at source (primary market), except in both the issuance and the regulatory framework for those investors who have tax-exempt certificates from the Government securities. Kenya Revenue Authority. However, bonds with maturi- ties of 10 years and above attract 10% withholding tax The banks are regulated by the CBK, while the Retirement and those below attract 15% withholding tax. There is no Benefits Authority regulates the pension sector. The Insur- difference in tax treatment between resident and non- ance Regulatory Authority regulates the Insurance sector. resident investors in Government and corporate bonds.

Taxation Capital gains do not attract any taxation. Interest income attracts tax on non-infrastructure/asset-backed securities

Clearing and Settlement

The settlement cycle for the primary Government bond As paperless securities with no physical certificates-in- market is T+1, while for the secondary market the set- vestors receive statements showing their holdings as tlement cycle is up to T+3. Cash settlement of all trades registered on the Central Depository Securities (CDS) through the ATS takes place through the Kenya Electronic Registry at the Monetary Operations & Debt Management Payment and Settlement System (KEPSS) also known Department of the Central Bank. Physical CDS account as Real Time Gross Settlement (RTGS), domiciled at the statements are sent to investors on a quarterly basis and Central Bank of Kenya. All securitized debt is dematerial- also on request, provided the accounts show outstand- ized and DVP is fully automated. Securities are identified ing securities. with both ISIN Codes and CBK issue numbers. Kenya 75

Prospective investors who wish to trade in any Kenya insurance companies, banks, non-bank financial institu- Government securities are required to open a CDS account tions, NGOs and entities established by statute, which with the Central Bank of Kenya. The CDS account acts are mainly State Corporations. as the investor’s securities holding and trading account. Investors may choose to open CDS accounts directly with The CBK plays a custodial function for Government Secu- the Central Bank or open a client account through author- rities. However, investments made through commercial ized agents that include commercial banks, investments banks, investment banks, and unit trusts as nominees banks, stock brokers and investment advisors. No fee is do not have accounts/record with CBK. Corporate bonds charged for opening and maintaining a CDS account that have different custodians, for example the KenGen bond is opened directly at the central bank. has the Central Depository and Settlement Corporation (CDSC) Limited as its custodian. Issuers may appoint CDS accounts may be opened in the names of individual any independent custodian and registrar licensed by the investors or corporate entities and individual investors Capital Markets Authority. may open CDS accounts either singly or jointly. Corporate CDS account holders include companies, co-operatives,

Recent Developments

Event Date Automation of trading and settlement of both Government and corporate bonds in the secondary market. All December GoK securities are traded at NSE, but settlement of cash and securities done at CBK on DvP basis 2009 Reporting of cut-off rate in auctions and reduced waiting time for trading newly issued securities from T+3 to October T+1, 2009 Introduction of Horizontal Repos backed by GoK securities September 2009 Introduction of 364-day Treasury bill and secondary trading of Treasury bills (364 days) on OTC August 2009 Split between 91 days and 182 days offer for auctions issuance frequency July 2009 Change in withholding tax from 15% to 10% on bonds with maturities of more than 10 years June 2009 Issuance of 15-20 year bonds to lengthen yield curve June 2009 Reopening of benchmark bonds April 2009 Infrastructure/Project-specific bonds issuance February 2009 Reduction of minimum threshold to invest in Treasury bills from Ksh 1,000,000 to Ksh 100,000 January 2009 Introduction of standard market yield curve based on clean price March 2008

Regulatory Contacts Capital Markets Authority Central Bank of Kenya Re-Insurance Plaza, 5th Floor, Taifa Haile Selassie Avenue, P.O. Box Road, P.O. Box 74800-00200, City Square, Nairobi, Kenya 60000-0200, Nairobi, Kenya Tel: +254-20-226225/221910, Fax: +254-20-228254 Tel: +254-20-2861000/2860000 E-mail: [email protected] Fax: +254-20-340192 Website: www.cma.or.ke E-mail: [email protected] Website: www.centralbank.go.ke 76 Kenya

Nairobi Stock Exchange Fund Managers Association (FMA) 1st Floor, Nation Centre Kimathi Street, P.O. Box 43633- P.O. Box 46143 00100 Nairobi, 00100, Nairobi, Kenya Tel: +254-20-230692 ICEA Building, Kenyatta Avenue, Nairobi Fax: +254-20-224200 E-mail: [email protected] Retirement Benefits Authority (RBA) Website: www.nse.co.ke Retirement Benefit Authority, Rahimtullah Tower, Upper Hill, 13th Floor, P O Box 57733 Kenya Association of Stockbrokers and – 00200 Nairobi Investment Bankers (KASIB) P.O. BOX 43593-00100 Nairobi, Kenya Insurance Regulatory Authority (IRA) Insurance Regulatory Authority, Central Depository for Settlement Zep Re Place, off Mara road, Upper Hill, P O Box 43505 – Corporation (CDSC) 00100 Nairobi National Center, 10th Floor, Kimathi Street P.O.BOX 3464-00100 GPO Nairobi TEL: +254 (20) 2229406 – 08, 2229421/26

Lesotho

2009 at a glance Population (mn) 2.1

SOUTH Butha Buthe Population growth (annual %) 0.9 AFRICA Official language English/Sesotho

Currency Loti (LSL) Mokhotlong GDP (Current US$ bn) 1.4 Maseru

Thaba Tseka GDP growth (annual %) 1.1 LESOTHO GDP per capita (Current US$) 659.9 Mafeteng Total Debt (US$ bn) 0.6

Qacha’s Nek Total Debt/GDP (%) 47.1 Mohale’s Hoek

CPI (annual %) 6.1 SOUTH Quthing AFRICA Exports of Goods and services (% of GDP) 59.7 Gross Official Reserves (in US$ bn) N/A Gross Official Reserves (in months of imports) N/A LSL / 1 USD (Year end) 7.3980

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch BB BB- Moody’s Not rated Not rated S & P Not rated Not rated

Summary

»» Lesotho is a member of the Common Monetary Area (CMA) that comprises South Africa, Namibia and Swaziland. Accordingly, its financial system is strongly integrated with the South African financial markets. »» The fixed income market is composed solely of Government securities. »» The investor base is composed almost exclusively of commercial banks. »» There is no benchmark yield curve. »» The Bank of Lesotho has implemented a number of measures aimed at improving the money market in 2008. »» Reuters codes for market data: LSTB01 and LSTB02. 78

Monetary Policy and Money Market

The Central Bank of Lesotho has the authority to define the Treasury bill rate (the 91-day TB discount rate plus monetary policy. Nonetheless, in line with the existing 400 basis points). fixed currency peg, the Treasury bill rates are closely al- ligned with South African rates. Until recently, the Bank of Lesotho had two Treasury bills of 91 and 182 days. In 2008, two longer-dated bills were Lesotho uses the Lombard facility (the policy rate) which introduced, with 273 and 364 days maturities. is a punitive overnight facility (the Treasury bill rate plus a margin) at the Central Bank to meet commercial banks’ short-term liquidity needs. The Lombard rate is linked to

Fixed Income Market Government Securities Investors The Lesotho fixed income market is currently comprised Commercial banks are the main buyers of Government of Government Treasury bills with a maturity period not bills in the competitive market.1 There are four major exceeding one year. These include 91-, 182-, 273 and players in the commercial banking arena: Standard Le- 364-day Treasury bills and are currently issued purely sotho Bank Limited, Ned Bank Limited and First National for monetary policy purposes. Bank, which are all South African owned. There is also a state-owned Lesotho Post Bank. Non-competitive bids The sale of the Treasury bills is done via competitive are aimed primarily at individual investors. and non-competitive bids of LSL 250,000 and LSL 5,000 respectively. The Central Bank of Lesotho employs the Holdings by category of investor as at June 30, Dutch auction system for the sale of bills, which takes 2009 (in percent) place on a fortnightly basis. Other Insurance 8% companies The Government has issued 5 and 10-year bonds in the 10% past, with the last issue dating back to 1999. The 5-year bonds redeemed in 2004, while the 10-year instrument matured in 2009. These bonds were primarily issued to

facilitate the liquidation of state-owned banks in Lesotho. Commercial Banks 82% Arrangements are currently underway to establish a bond market and a stock exchange.

Maturity profile of Government of Lesotho securities as at June 30, 2009 (in Loti) Source: Central Bank of Lesotho

Millions 1,0

0,8

0,6

0,4

0,2

0,0 0 to 1 year 1 to 3 years 3 to 5 years 5 to 10 years 1 Central Bank of Lesotho Implements Strategies Aimed at Maturity Strengthening Money Market in Lesotho: Implications for Economic Source: Central Bank of Lesotho Growth, August 2008 79

Foreign Exchange Market

The Central Bank is responsible for executing the foreign LSL per Unit of USD (Year End) exchange policy in line with the CMA’s foreign exchange 10 policy. Under the CMA agreement, Lesotho enjoys free access to the South African foreign exchange market.

8 All CMA member countries apply the same exchange control regulations: non-resident capital flows are gen- erally unrestricted; capital, profits and dividends can be 6 repatriated; and exchange control limitations apply to resident capital flows. 4 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 The opposite graph provides historical levels of the LSL against the USD. Source: Bloomberg

Regulation and Taxation

Regulation rent developments in the financial sector, as well as best The Central Bank of Lesotho regulates all financial institu- internationally practice and standards. tions with the goal of preserving the financial strength and stability of the national banking system. It conducts Taxation onsite examinations and offsite surveillance to ensure Tax is withheld at source at a rate of 10% on interest paid adherence to prudential requirements and the proper in excess of the exempt amounts. Withholding tax rates functioning of the banking system. applicable to residents and non-residents are 10% and 15%, respectively. The Central Bank undertook a review of the Financial Institutions Act in 2008 to align the Act with the cur-

Clearing and Settlement

The settlement of securities is processed through the Real In an RTGS system, transactions are settled across ac- Time Gross Settlement System (RTGS). This procedure is counts held at the Central Bank on a continuous gross done on a same-day basis. basis. Settlement is immediate, final and irrevocable significantly reducing credit risk accross the market.

Regulatory Contacts

Central Bank of Lesotho P.O. Box 1184, MASERU 100, Kingdom of Lesotho Corner Airport and Moshoeshoe Roads, Maseru Central, Lesotho Tel: +266)-22314281/22324281 Fax: +266-22310051/22310679 E-mail: [email protected] Website: www.centralbank.org.ls Liberia

2009 at a glance Population (mn) 3.9 Population growth (annual %) 4.2 GUINEA

Official language English SIERRA Voinjama LEONE Currency Liberian Dollar (LRD) IVORY COAST Sanniquellie

GDP (Current US$ bn) 1.3 Gbarnga

Yamoussoukro GDP growth (annual %) 4.2 Monrovia Zwedru GDP per capita (Current US$) 318.1 Buchanan LIBERIA Total Debt (US$ bn) 2.5

Total Debt/GDP (%) 200.1 Harper ATLANTIC OCEAN CPI (annual %) 7.1 Exports of Goods and services (% of GDP) 35.7 Gross Official Reserves (in US$ bn) 0.2 Gross Official Reserves (in months of imports) 1.0 LRD / 1 USD (Year End) 69.50 Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Summary

»» Following years of civil conflict, Liberia’s economy and financial sector have been developing gradually. »» Liberia has not begun issuing Government securities, but is in the process of setting up a short- term Treasury bills market. 82 Liberia

Monetary Policy and Money Market

The Central Bank of Liberia regulates the financial market. influencing the money supply and ensuring exchange rate The banking sector has excess liquidity and the goal of stability. The operating instrument for monetary policy is monetary policy is to maintain relative price stability by the exchange rate the purchase and sale of USD.

Fixed Income Market Government Securities Banking System There is no Treasury-bill market at present or any issuance The banking sector is comprised of eight banks. The ab- of Government bonds. The Government is developing the sence of Government securities has created a shortage of infrastructure for Treasury bills. investible assets and has resulted in high liquidity levels in the banking system.

Foreign Exchange Market

The Liberian dollar (LRD) is a free-floating currency. The graph below provides historical levels of the LRD However, the US dollar is also legal tender in Liberia and against the USD. is used alongside the LRD. The Liberian dollar is held for small purchases, especially in the rural areas, and is used LRD per Unit of USD (Year End) by the Government for payment of civil servants’ salaries, Source: Bloomberg the US dollar is the medium of exchange in trade and 80 financial transactions. 70 The current and capital accounts are fully liberalized and

there are no restrictions on investment returns repatria- 60 tion. Any investment proceeds are freely convertible and

transferable in and out of the country. 50

The Central Bank of Liberia intervenes in the foreign 40 exchange market from time to time as this is the most Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 dominant monetary policy tool.

Regulation and Taxation

The Central Bank of Liberia is the regulator of the banking sion scheme is regulated by the Ministry of Labor and sector as well as the capital markets. The national pen- the insurance industry by the Ministry of Transportation. Liberia 83

Regulatory Contacts Central Bank of Liberia P. O. Box 2048 Corner of Warren and Carey Street Tel: + (231) 226-991/ 225-685/ 229-728 Fax: + (231) 226-114 Website: www.cbl.org.lr Libya

2009 at a glance Gabès MEDITERRANEAN SEA TUNISIA Tripoli Al-Baydaz- Banghaz- i- Population (mn) 6.4 Tubruq Surt Population growth (annual %) 1.9 Official language Arabic LIBYA Currency Libyan Dinar (LYD) ALGERIA Marzuq- EGYPT GDP (Current US$ bn) 66.2 Al-Jawf GDP growth (annual %) 1.6 GDP per capita (Current US$) 10,311.5 NIGER SUDAN Total Debt (US$ bn) 5.6 CHAD Total Debt/GDP (%) 8.4 CPI (annual %) 5.3 Exports of Goods and services (% of GDP) 56.1 Gross Official Reserves (in US$ bn) 92.1 Gross Official Reserves (in months of imports) 41.0 LYD / 1 USD (Year End) 1.2313

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch BBB+ BBB+ Moody’s Not rated Not rated S & P A- A- Source: Fitch, S&P

Summary

»» There is no fixed income securities market in Libya. »» Structural reforms in the banking sector are underway, including privatization of several local banks. Banks hold significant excess liquidity. »» Strengthening of the private sector and diversification of the economy. 86 Libya

Monetary Policy and Money Market

The banking system in Libya is characterized by excess The CBL determines the interest rate applicable to these liquidity that has its roots in the fiscal surplus that Libya deposits and also determines the uniform interest rate cap has enjoyed over the years. Deposits in banks that are at which the commercial banks on-lend to their clients. part of state budget allocations and intended for public However, the CBL does not determine the deposit rate entities are kept in banks, earning no interest as they applied by commercial banks to their clients’ deposits. await public entity drawdowns. These funds are invested by commercial banks in certificates of deposit issued by In May 2008, the CBL established the Repurchase Agree- the Central Bank of Libya (CBL). ment market, which was a step towards indirect monetary policy instruments. An electronic auction trading system The CBL introduced certificates of deposit (CD) in May on 91-day CBL certificates of deposit was also launched 2008 to control the amount of liquidity in the banking and several changes in implementation of monetary policy system. These CDs are of a single maturity of 91 days and are underway. are offered at a predetermined fixed rate. The CBL is to extend the range of the maturities of certificates of deposit beyond 91 days and to develop an auction mechanism.

Overview of Financial Sector

The banking sector is comprised of the Libyan Develop- Libya is reforming its state-dominated banking sector that ment Bank, a micro-credit and economic development was built to support Government development priorities. bank, a savings and real estate development bank (com- Following the recent initiatives to privatize several banks, monly referred to as Specialized Credit Institutions SCI) more credit is flowing into the private sector and SMEs. and over 45 small regional banks, most of which have Commercial banks still have high liquidity that is slowly been merged under the National Banking Corporation. but gradually filtering into loans to the private sector. This corporation provides banks with services such as ac- However, the main assets on the commercial banks books counting and training.1 The SCI provide subsidized credit are cash and short-term deposits held at the Central Bank to residential real estate, agriculture, and small enterprises of Libya. in competition with commercial banks. The privatization process has seen international banks like BNP Paribas acquire a stake in local banks. This will be vital in transferring technology and skills into the 1 Oxford Business Group Report, Libya 2008 Libyan banking environment.

Foreign Exchange Market

The Libyan dinar (LYD) underwent two major devalua- the US dollar. Commercial banks are allowed to sell foreign tions: 51% in January 2002 and 15% in June 2003. Since currencies at the official rate for transactions related to 2003, the LYD has been pegged to the IMF’s Special imports of essential goods or medical treatment abroad, Drawing Rights (SDR), a basket of currencies consisting but fees are levied on outward foreign exchange transfers. of USD, EUR, JPY and GBP. The peg is LYD 2.80/1 SDR, The LYD is extremely illiquid. In order to conduct FX allowing maximum margins of +/7.5% around the peg rate. transactions, presentation of commercial papers and/or the purpose or the source of funds has to be provided. The LYD has been generally stable within a range of LYD Residents and non-residents may hold foreign currency 1.22–1.42/1 SDR. The CBL uses its considerable foreign accounts with prior approval. Similar approvals are also re- exchange reserves to ensure exchange rate stability versus quired for direct investment and other capital transactions. Libya 87

The LDY’s peg to the Special Drawing Right (SDR) con- LYD per Unit of USD (Year End) tinues to serve Libya well. While the LYD appears to be 1.5 moderately overvalued, this is likely to be partly transitory in view of the projected decline in the external current 2 account surplus. 1.4

The opposite graph provides historical levels of the LYD against the USD. 1.3

1.2 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

2 http://www.imf.org/external/pubs/cat/longres.cfm?sk=23299 Source: Bloomberg

Derivatives Market

There is no derivatives market in Libya.

Regulation

The Central Bank of Libya regulates the banking and the nonbank sectors of the economy.

Clearing and Settlement

The Central Bank manages the clearing and settlement system. The required infrastructure for electronic clear- ance and settlement is not well developed.

Regulatory Contacts Central Bank of Libya P.O. Box 1103, Tripoli, Libya Tel: +218-21-3333591-99 Fax: +218-21-4441488 E-mail: [email protected] Website: www.cbl.gov.ly Madagascar

COMOROS 2009 at a glance Moroni Antsiranana Population (mn) 19.6 MAYOTTE Population growth (annual %) 2.7 France Official language Malagasy Currency Malagasy Ariary Mahajanga (MGA) GDP (Current US$ bn) 8.7 MADAGASCAR Toamasina GDP growth (annual %) 1.7 Antananarivo GDP per capita (Current US$) 443.5 Total Debt (US$ bn) 2.5 Fianarantsoa Total Debt/GDP (%) 28.8 INDIAN OCEAN

CPI (annual %) 10.3 Toliara MAURICE Exports of Goods and services (% of GDP) 20.9 Port Louis Gross Official Reserves (in US$ bn) 0.9 REUNION France Gross Official Reserves (in months of imports) 2.6 MGA / 1 USD (Year end) 1,970.00

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Summary

»» Government securities yield curve has longest tenor of 52 weeks. »» Commercial banks are the main investors. »» Weekly auctions of Treasury bills. »» No active secondary market. Tradable debt securities were launched in the second quarter of 2007. »» Reuters codes for market data: • BCMT (for FX and Foreign Money Trades Only), Page: BC-MMG 90 Madagascar

Monetary Policy and Money Market Monetary Policy Money Market The main objective of the Central Bank of Madagascar The benchmark is the Central Bank’s prime rate. The (BCM) is to maintain the internal and external stability interbank money market is comprised of Repos and of the currency by targeting the stability of both domestic Treasury bills. prices and real effective exchange rates. The management framework of the monetary policy is based on the strict monitoring of monetary aggregates through open market and Repo operations and on the use of prime rate.

Fixed Income Market

Government Securities Government securities yield curve as at Treasury bills are the main Government debt instrument. 31-December 2007, 2008 and 2009

They are issued with maturities ranging from 4 weeks to 12% 52 weeks. Historically, the Treasury issued Government bonds, however as of June 2009, there was no outstand- 10% ing Treasury bond.

8% The table below provides details of Treasury bill issuance.

Auction details 6%

4% Auction fre- Every 2 Weeks: 4-weeks 12-weeks 24-weeks 52-weeks quency • Wednesday for competitive bids 30-Jun-09 30-Jun-08 30-Jun-07 • Tuesday for non-competitive bids Auction method • For competitive bids : Dutch Source: Central Bank of Madagascar (BCM) • For non-competitive bids: issued at weighted average rate of competitive Non-Government Securities bids There is no corporate and municipal debt market in Settlement cycle Auction day +2 days Madagascar. Access Via banks and financial institutions Minimum bid 20 million Ariary Intermediaries amount There are no primary dealers in Madagascar. However, subject to a good credit standing and a local currency ac- Foreign investors Not eligible to invest in T-bills, unless they are resident and have a local cur- count, any investor excluding foreign entities can have rency bank account access to both the primary and the secondary market. Source: BCM Investors As of 31 December 2009, the outstanding T-bills amount Commercial banks are the most active investors in Mada- was MGA 743 billion, with more than 82% maturing gascar’s debt market. As of 31 December 2009, their within 24 weeks. total holdings were approximately 68% of outstanding Government debt. The opposite graph illustrates the changes in Madagascar’s Government yields curves for the last three years. The following chart provides holdings by investor type as of December 2009.

Madagascar 91

Holdings by category of investor as at June 30, Primary Market 2009 (in percent) The National Treasury regularly issues short-term debt

Individuals, 3% Others, 3% instruments in the local capital market to fulfil financing Corporate, 1% needs at competitive prices. The BCM does not buy T-bills, but accepts them as collateral for Repos and loans to banks.

No Banking Secondary Market Financial The secondary market is not very liquid. The number of Institutions, 25% transactions has dramatically decreased by more than 45% Commercial Banks, 68% over the last six years. Similarly, the volume of transac- tions declined from approximately MGA 1,296 billion in 2004 to approximately MGA 194 billion in 2008. As of December 2009, the volume of transactions was ap- proximately 60 billion.

Source: Central Bank of Madagascar

Foreign Exchange Market

The official currency of Madagascar is the Malagasy Ariary The following graph provides historical levels of the MGA (MGA). The exchange rate is freely determined by the against the USD. interbank currency market through supply and demand. The Central Bank of Madagascar (BCM) limits short-term MGA per Unit of $US (Year End) excessive fluctuations through direct interventions. 2500

In 1996, the Government lifted all restrictions on current account-related payments, while capital transactions re- quire prior authorization by the Ministry of Finance and 2000 Budget. Between 2006 and 2008, a current account deficit was recorded. There was a surplus to the capital account following a huge inflow of foreign direct investments. In total, the balance of payments was in surplus over the three years prior to 2009, after which the trend reversed. 1500 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Capital inflows, transfers of dividends and earnings are Source: Central Bank of Madagascar free of restrictions, however, the repatriation of capital is subject to authorization.

Derivatives Market

There is no derivatives market in Madagascar.

92 Madagascar

Regulation and Taxation Regulation Taxation The Ministry of Finance supervises the financial sector. Interest income is taxable at 23% and collected at source.

Clearing and Settlement

The BCM is the clearing and settlement house and the codes and settled automatically through a delivery against central depository for debt instruments. All securities payment system. are dematerialized, identified with national identification

Regulatory Contacts Banque Centrale de Madagascar B.P 550, Madagascar, Antananarivo (101), Madagascar Tél: +261 20 22 217 51 Fax : +261 20 22 345 32 E-mail: [email protected] mailto:[email protected] Website: http://www.banque-centrale.mg Malawi

2009 at a glance Population (mn) 15.3

Population growth (annual %) 2.8 TANZANIA Official language English/Chichewa Currency Malawian Kwacha Mzuzu (MWK) ZAMBIA Lake Nyasa GDP (Current US$ bn) 3.9 GDP growth (annual %) 5.7 MALAWI MOZAMBIQUE GDP per capita (Current US$) 214.7 Lilongwe Total Debt (US$ bn) 0.9

Total Debt/GDP (%) 26.5 Zomba Blantyre CPI (annual %) 5.4 Exports of Goods and services (% of GDP) 24.9 Gross Official Reserves (in US$ bn) 0.15 Gross Official Reserves (in months of imports) 2.2 mwk / 1USD (Year End) 145.9973

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Summary

»» Government securities yield curve has tenors up to 273 days. »» The banking industry is dominated by three large institutions that own approximately 70% of total assets and deposits. »» The fixed income market consists almost exclusively of Government and Central Bank short-term bills. »» The National Bank of Malawi, one of the leading commercial banks, has recently introduced a bond. »» Most of these instruments are purchased by commercial banks and discount houses. 94 Malawi

Monetary Policy and Money Market

The Reserve Bank of Malawi (RBM) focuses monetary In 2008, confronted with scarce foreign currency reserves, policy efforts on keeping inflation under control. The the Government requested the IMF’s assistance via an RBM is also mandated, under the Reserve Bank of Malawi exogenous shock facility. Act, to manage the country’s foreign exchange reserves.

During 2007 and 2008, the central bank pursued an ex- pansionary monetary policy to promote economic growth and private sector development.

Fixed Income Market Government Securities Investors There is a limited supply of fixed income securities in The Investor base is composed primarily of commercial Malawi. The offering is composed exclusively of short- banks. There are 11 commercial banks operating in the term Government bills. The Government issues Treasury country and three of these control over two-thirds of the bills with maturities of 91, 182 and 273 days. market. Insurance companies are also buyers of Treas- ury bills. There are 13 insurance companies: 8 non-life Intermediaries insurance companies, 4 life insurance companies and 1 The Reserve Bank of Malawi acts as an agent of the Malawi reinsurance company. Government in the issuance of Treasury bills.

Two discount houses are the main participants in the buying and selling of Treasury securities in the second- ary market.

Foreign Exchange Market

The Malawian Kwacha (MWK) was floated on 7 February MWK per Unit of USD (Year End)

1994. The official exchange rate is based on the mid rate 150 of the average buying and selling rates as reported by commercial banks.

The currency is convertible with respect to current ac- 120 count transactions. Nonetheless, given that capital account controls still exist, the currency is not freely convertible internationally. Both inward and outward direct and portfolio investments require prior approval. 90 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 The opposite graph provides historical levels of the MWK against the USD. Source: Bloomberg Malawi 95

Derivatives Market

There is no derivatives market. The securities law is being reviewed to consider derivatives trading.

Regulation and Taxation Regulation Taxation All banks and insurance companies, as well as the Malawi A withholding tax of 15% is levied on interest income. Stock Exchange and the securities market are regulated and supervised by the Reserve Bank of Malawi.

The Malawi Stock Exchange operates under the Capital Market Development Act of 1990 and the Companies Act of 1984.

Regulatory Contacts Malawi Stock Exchange Reserve Bank of Malawi Old Reserve Bank Building, Private Box 30063, Bag 270, Blantyre, Malawi Capital City, Lilongwe 3, Malawi Tel: +265-1-624233 Convention Drive Fax: +265-1-623636 City Centre, Lilongwe, Malawi E-mail: [email protected] Tel: +265-1-770.600 Website: www.mse.co.mw Fax: +265-1-772752/265, 774289 E-mail: [email protected] Website: www.rbm.mw

Mauritania

2009 at a glance MOROCCO El Aaiún Population (mn) 3.3 ALGERIA ATLANTIC OCEAN Population growth (annual %) 2.3 Official language Arabic WESTERN Currency Mauritanian Ouguiya SAHARA (MRO) Fdérik

GDP (Current US$ bn) 3.1 Nouâdhibou GDP growth (annual %) 1.8 Atâr MALI GDP per capita (Current US$) 952.2 MAURITANIA Nouakchott Total Debt (US$ bn) 1.9

Aleg Total Debt/GDP (%) 61.7 Rosso Kaédi CPI (annual %) 4.2 SENEGAL Sélibaby Dakar Exports of Goods and services (% of GDP) 44.9 Mopti Gross Official Reserves (in US$ bn) N/A Gross Official Reserves (in months of imports) N/A MRO / 1USD (Year end) 263.00

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» Government securities yield curve has longest tenor of 50 weeks. »» Financial market is dominated by commercial banks. »» Treasury bill auctions are held every week »» No secondary market trading activity 98 Mauritania

Monetary Policy and Money Market

Established in 1973, the Banque Centrale de Mauritanie In 2008, the BCM categorized inflation as an operational (BCM) is in charge of the monetary policy of the Islamic strategic target and set up a strategic plan that aims to Republic of Mauritania with the main objective of price upgrade its information infrastructure and enhance the stability. The BCM ensures the stability of the Mauritanian institution’s analytical capabilities, in order to better define financial system and supports the implementation of the inflation target and monitor price levels. economic policy defined by the Government. The main instruments in the Mauritanian money market are Treasury bills “bons de trésor à court terme” (BTC), In January 2007, the BCM went through an important certificate of deposit (CDs), commercial papers (CPs), Cen- reform aimed at strengthening its independence, with tral Bank bills (CBBs) and Repos. The interbank market greater autonomy in the formulation and implementa- benchmark rates are the Central Bank prime rate and the tion of the monetary policy through the creation of the weighted average treasury bills rate (WATBR). In 20091, Monetary Policy Committee (MPC). The MPC meets once a the WATBR fluctuated between 8% and 12%, with the month to examine monetary and economic developments majority of the decline occurring during the second half and takes necessary actions which are compiled and of the year. published in a periodic newsletter. The main instruments are open market and Repo transactions, and minimum reserve requirements for banks. 1 Source : BCM website

Fixed Income Market

Government Securities Evolution of the weighted average treasury bills BTCs are issued through a weekly auction by the national rates in 2009 Treasury in coordination with the BCM to help regulate 12% money supply in the interbank market and to meet the Government’s short-term liquidity needs. The Treasury can also issue Treasury bonds, known as “bons du trésor annual” (BTA), and “Titres de Créances Négociables” (TCN) 10% to fulfil the funding needs of the Government, as well as for debt management purposes.

The Government of Mauritania issues Treasury bills 8% through a weekly auction on Mondays, for 4-, 13-, 26and Jan 09 Mar 09 May 09 Jul 09 Sep 09 Nov 09 Jan 10 Mar 10 50-week tenors. BTC are issued at a discount for a multiple of 1 million MRO. In 2009, the amount of BTC issued Source : BCM per auction was between MRO 5 and 10 billion, with a slight increase in the fourth quarter of the year. As the Non-Government Securities issuing agent of the Government, the national Treasury There have been no corporate issuances in the Maurita- can also issue Treasury bonds (BTA) for a maturity of nian debt market. more than 1 year. Intermediaries The opposite graph shows the fluctuation of the WATBR in Commercial banks are the main intermediaries of the 2009. Mauritanian debt market. They have access mainly to the primary market for their own book or for those of The Central Bank of Mauritania issues bills with tenor of their clients. less than one year to regulate the interbank money supply. Mauritania 99

Investors Primary Market The banking sector is the major investor in Mauritania, Commercial banks are the main players of the primary accounting for the majority of BTC’s holdings in 2009. market. Foreign investors have access to the primary market; however, their participation is currently very marginal. Secondary Market Established in 2007, the secondary market is not yet active.

Foreign Exchange Market

The Mauritanian Ouguiya (MRO) is a managed floating MRO per Unit of USD (Year End) currency. Since May 2004, the MRO fluctuated between 275 MRO 268.6 and MRO 250.6 per 1 USD. 270 Mauritania has a free exchange regime. In practice, the transfer of capital is handled by banks. Since the sector 265 is liberalized, banks do not need authorization from the 260 BCM to transfer funds offshore.

255 The opposite graph provides historical levels of the MRO against the USD. 250 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: BCM and Bloomberg

Derivatives Market

There is no derivatives market in Mauritania.

Regulation and Taxation Regulation Taxation The BCM is the main regulatory body of the financial Both foreign and local investors are treated equally in ac- market. It supervises the banking sector, which com- cordance with the tax laws currently in effect. Interest on prises 12 commercial banks, 8 insurance companies and Treasury bills is subject to personal and corporate taxes. 80 microfinance institutions, including 51 credit unions “Caisses Populaires locales d’Epargne et de Crédit” (CAPEC).

100 Mauritania

Clearing and Settlement

The BCM is the clearing and settlement house, as well as the central depository for securities.

Regulatory Contacts

Banque Centrale de Mauritanie B.P. 623 Nouakchott, Mauritanie Tel: +222-252206, 252888 Fax: +222-252759 E-mail: [email protected] Website: www.bcm.mr Mauritius

2009 at a glance Population (mn) 1.3

INDIAN Population growth (annual %) 0.7 OCEAN

Official language English/French Triolet PAMPLEMOUSSES Rivière Currency Mauritius Rupee MAURITIUS du Rempart

(MUR) Port Louis l’Aventure

GDP (Current US$ bn) 9.5 Beau Bassin Moka Rose Hill Quatre Bornes GDP growth (annual %) 2.0 Phœnix Vacoas Curepipe GDP per capita (Current US$) 7,351.3 Tamarin

Rose Belle Total Debt (US$ bn) 0.9 Mahébourg Total Debt/GDP (%) 9.8 Savannah CPI (annual %) 7.3 Exports of Goods and services (% of GDP) 52.5 Gross Official Reserves (in US$ bn) 1.8 Gross Official Reserves (in months of imports) 3.8 MUR / 1USD (Year end) 30.3500

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch Not rated Not rated Moody’s Baa2 Baa2 S & P Not rated Not rated

Source: Bloomberg

Summary

»» Government securities yield curve has longest tenor of 20 years. »» Securities are issued to finance Government expenditure. The Bank of Mauritius issues bills for money market liquidity management. »» Treasury bills auctions are announced two days before issuance; the issuance calendar for Government bonds is available on the websites of the Bank of Mauritius and the Ministry of Finance, and is also published in the local press. »» Challenges facing the market include development of benchmark securities, issuing single maturity securities, developing an active secondary market and online auctioning of Government Securities. »» Reuters codes for market data: • BOMA, BOMP, BOMTBA, BOMTBC, BOMTBD, BOMTBE 102 Mauritius

Monetary Policy and Money Market

The primary objective of the Bank of Mauritius (BOM) The Bank provides a Special Deposits Facility to banks at is to maintain price stability and to promote orderly and its discretion, at 100 basis points below the key Repo rate balanced economic development. The Monetary Policy for a maximum period of 21 days. An Overnight Facility Committee (MPC) of the Bank of Mauritius formulates and against collateral at 150 basis points above the key Repo determines the monetary policy to be conducted by the rate is also provided subject to a borrowing quota. As Central Bank. In the current monetary policy framework, lender of last resort, the Bank maintains a collateralized introduced in December 2006, the key Repo rate is the Standing Facility to banks without any borrowing quota policy instrument used to signal changes in the monetary at 400 basis points above the key Repo rate. policy stance. The MPC convenes on a quarterly basis, and also as and when required outside regular meetings, The price stability objective is clarified under the Act which to decide on the level of the key Repo rate. To sensitize provides for the Bank to determine, with the concurrence economic agents and explain monetary policy decisions, of the Minister of Finance and Economic Empowerment, a transparent communication strategy is in place. “… the accepted range of the rate of inflation during a given period consistent with the pursuit of the price An interest rate corridor has been set at +/125 basis points stability objective”. The legal requirement is presently around the key Repo rate to ensure coherent movement of under consideration for implementation. The fulfillment interbank interest rates with the policy interest rate. To of this requirement will foster the anchoring of inflation influence money market liquidity, the Bank regulates the expectations which will generate wide-ranging benefits supply of reserve money. In addition to reverse repurchase for the economy. and repurchase transactions conducted at 125 basis points below and above the key Repo rate respectively, Bank of Details of interbank and Repo transactions are posted Mauritius bills of 28 and 56-day maturities are also issued on Reuters and published in the monthly bulletin of the to manage money market liquidity. With the shorter end Bank of Mauritius. of the yield curve anchored, the overall yield curve will be prone to adjust to any changes in the policy interest rate.

Fixed Income Market

Government Securities Government securities yield curve as at 30 June Treasury bills are issued with tenors of 91, 182 and 364 2007, 2008 and 2009 days. Auctions are held weekly and the day-count con- Yield vention is actual/365. 15%

Treasury note auctions are held monthly with tenors for 12% 2, 3 and 4 years. Government bond tenor is 5 years and long-term bond tenors are 7, 13 and 20 years. Auction 9% frequency is every 2 months for 5-year bonds and 2 or 3

times a year for long-term bonds. 6%

Government securities are issued by the Bank of Mauritius 3% on behalf of the Government of Mauritius solely for 91 day 182 day 1 year 2 years 3 years 5 years 20 years Tenor financing Government expenditure. The market offers 30-Jun-09 30-Jun-08 30-Jun-07 fixed-rate bonds, inflation linked bonds and zero coupon bonds. The dominant principal payment mode is bullet Source: Bank of Mauritius redemption.

The Bank of Mauritius issues 28-day and 56-day bills to manage money market liquidity. Mauritius 103

Non-Government Securities ship. The two largest banks in Mauritius, the Mauritius Corporate bonds are listed on the Mauritius Stock Ex- Commercial Bank and the State Bank of Mauritius, control change (SEM) and are traded on both the SEM and the approximately 70% of all banking assets. Total assets of OTC board in Mauritius. However, new issuances have commercial banks as of 30 June 2009 amounted to MUR been limited recently. This is partly due to the Government 743 billion, which represents an increase of 1.9% over the reversing its favourable tax policy on interest payments previous year. Total deposits stood at MUR 547 billion, of corporate bonds. Consequently, as of December 2009, including MUR 351 billion held in foreign currencies. there was no outstanding corporate bond in the market. Mauritius has a balanced and well-managed multi-pillar Intermediaries pension system. In addition to several public components, Eleven investment dealers trade Government of Mauritius such as the Basic Retirement Pension, the National Pen- Securities/Bank of Mauritius Bills on the Stock Exchange sions Fund, the National Savings Fund, and the Civil of Mauritius. A Primary Dealer System was established in Service Pension Scheme, there are over 1,000 funded March 2002 and currently there are twelve primary dealer occupational pension schemes that play an increasingly banks. Primary dealers and other financial institutions par- important part in the fixed income market. ticipate at the primary auction of Government Securities. The insurance sector is highly concentrated: the three larg- Non-residents can participate in the market through ap- est groups, SICOM (State Insurance Company of Mauritius, proved primary dealers or investment dealers. a state-owned company), Swan/Anglo-Mauritius and BAI (British American Insurance), represent approximately Investors two-thirds of total industry assets. Investment in overseas Proportions of holders by investor category are as follows: assets is limited to 25% of total assets, except for foreign life insurance companies and general insurance business Holdings by category of investor as at June 30, which are not allowed to invest in overseas assets. 2009 (in percent and million rupees) Other 3% Central Bank 0% Holdings by foreign investors in Government Securities Foreign Investors 0% stood at MUR 59 million as of 30 June 2009.

Retail investors can access the Government market in the Pension funds, following ways: auctions on the primary market; the Stock 32% Exchange; Primary Dealer System; and over-the-counter (OTC) at the BOM. Commercial Banks, 51%

Insurance Primary Market companies, Securities of the Government of Mauritius are currently 14% available to the public in the primary market. Direct pur- chases are made through any of the 12 primary dealers operating under the Primary Dealer System. Applications Source: Data from Bank of Mauritius from individuals and non-financial institutions should be made through banks or licensed stockbrokers offer- There are currently 18 registered deposit-taking banks and ing these services. The minimum bid amount is MUR 13 registered non-bank institutions operating in Mauritius, 100,000, with multiples thereof. Government securities The banking industry is very developed and efficient, but are underwritten by the BOM in the primary market at there is a considerable degree of concentration of owner- non-competitive prices. 104 Mauritius

Maturity Profile for outstanding issues as at June The Central Bank owns a portfolio of Treasury bills which 30, 2009 is occasionally used in the secondary market to allow Billions market participants to adjust their liquidity between 60 the weekly primary Treasury bill auctions. A window is 50 also available at the Central Bank for individuals on the OTC market. 40

30 Primary dealers are required to quote continuous 2-way prices and the maximum spread has been set at 30 basis 20 points. The most liquid part of the curve has been the 10 301 to 364 day band, but no long-term benchmarks have been established yet. Secondary market trading is done 0 0-1 year 1-3 years 3-5 years 5-10 10-15 15-20 both on-exchange and over-the-counter. Pre-trade prices years years years are available on the website of primary dealer banks Source: Bank of Mauritius while post-trade prices can be found on the BOM website, Reuters’ screens and in monthly bulletins. Secondary Market Apart from the Stock Exchange of Mauritius and OTC markets, secondary trading also takes place on the Bank of Mauritius’ secondary market unit.

Foreign Exchange Market

Mauritius has a managed floating foreign exchange re- The graph below shows the historical levels of the MUR gime. The Mauritian Rupee is fully convertible. Both against the USD. the current and capital accounts are fully convertible. There are no reporting requirements for investors, both MUR per Unit of USD (Year End)

resident and non-resident, to move funds in or out of 35 Mauritius. Intervention in the foreign exchange market by the Central Bank is not aimed at offsetting market forces but at smoothing out unwarranted volatility. The IMF has recently proposed to reclassify the exchange rate 30 regime from managed float to free float.

Only fully-licensed dealers can trade in the foreign ex- change markets. In addition to the 18 commercial banks which carry out foreign exchange activities as part of their 25 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 banking business, there are 5 licensed foreign exchange dealers and 12 licensed money changers. The average daily Source: Bloomberg market transaction volume is USD 24 million with trans- action sizes ranging from USD 200,000 to USD 500,000. The most frequently traded pair is USD/MUR.

Derivatives Market

The Mauritius Market has interest rate and currency de- Of Trade Ltd. (GBOT) which is an international multi-asset rivatives, but the volume is not large. FX forwards exist derivatives exchange will shortly be offering a basket of with moderate liquidity and tenors extending up to 12 commodity and currencies derivatives for trading on its months. The Global Board platform.

Mauritius 105

Regulation and Taxation

Regulation from securities in Mauritius. Mauritius has signed double The Bank of Mauritius regulates and supervises the bank- taxation treaties with foreign Governments and so far it ing industry. Regulation of the securities market, the has concluded 33 tax treaties. Interest income is deductible pension sector and insurance sector falls under the the at source on investments above MUR 2 billion. Legislation Financial Services Commission. on tax may be obtained on the website of the Mauritius Revenue Authority (MRA) at http://www.gov.mu. There Taxation is no capital gains tax on fixed income securities. A 15% withholding tax exists for bond market investors. Non-residents are subject to income tax on interest earned

Clearing and Settlement

The clearing and settlement system is managed by the Custodial function is performed by the Bank of Mauritius Bank of Mauritius through the Mauritius Automated for the primary market and primary dealers for part of Clearing and Settlement System (MACSS). Primary market the secondary market. All investors have their record on settles on same day value for Treasury bills and T+2 for the central depository and may appear as sub-accounts Treasury notes and bonds. The secondary market normally of settlement agents. settles T+1 but can also be settled on same day. Most securities are dematerialized (book entry system) with DVP execution on a gross settlement basis.

Regulatory Contacts Bank of Mauritius Bank of Mauritius The Stock Exchange of Mauritius Tower Royal Street 4th Floor, One Cathedral Square Building, 16, Jules Koenig Port Louis Street, Port Louis, Mauritius Mauritius Tel: +230-2129541 Tel: +230-202 3800/3900 Fax: +230-2088409 Fax: +230-2089204 E-mail: [email protected] E-mail: [email protected] Website: www.semdex.com Website: http://bom.intnet.mu

The Financial Services Commission 4th Floor, Harbour Front Building, President John Kennedy Street, Port Louis, Mauritius Tel: +230-2107000 Fax: +230-2087172 Website: www.gov.mu Morocco

IBERIIAN PENINSULA 2009 at a glance Tanger Wahran Population (mln) 32.0 ATLANTIC OCEAN Oujda Rabat Sidi Bel Fès Abbès Casablanca Population growth (annual %) 1.2 Meknès Official language Arabic Marrakech Currency Moroccan Dirhams (MAD) Agadir MOROCCO GDP (Current US$ bn) 92.2 ALGERIA GDP growth (annual %) 5.1 El Aaiún GDP per capita (Current US$) 2,882.9 External Debt (US$ bn) 19.8 MAURITANIA External Debt/GDP (%) 21.5 CPI 1.5 Exports of Goods and services (% of GDP) 32.3 Gross Official Reserves (in US$ Bn) 21.9 Gross Official Reserves (in months of imports) 7.2 MAD / 1 USD (Year End) 7.9024

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch BBB BBB- Moody’s Ba1 Ba1 S & P BBB+ BBB-

Source: Bloomberg

Summary

»» Government yield curve has tenors up to 20 years with six benchmark points. »» Growing diversified investor base with marginal presence of foreign investors. »» Weekly Auction of Treasury bills and bonds. »» Average transaction size on the secondary market is MAD 70 million. »» Bloomberg and Reuters codes for market data: • Reuters : Morocco, Bam / Mon 01->10, Bam/Fx01 • Bloomberg: Cbom 108 Morocco

Monetary Policy and Money Market Monetary policy Money Market Established in June 1959, the Central Bank of Morocco The main components of the Moroccan money market are (Bank Al-Maghrib) formulates and implements monetary the Repo market, Commercial paper market and certifciates policy through open market and Repo operations with the of deposit. Other compo nents include the uncollateralized main objective of price stability. No quantitative inflation interbank and Treasury bills markets. level is targeted. The operational objective of policy deci- sions is to influence the interbank rates through the the The interbank market benchmarks are the Weighted prime rate and reserve requirements. Monetary policy Average Interbank Rate (WAIR) and 90-day and 180-day decisions, mainly the modification of the prime rate Treasury bill rates. and the reserve requirement, are taken at the quarterly Monetary Policy Committee (MPC the Board of Bank AlMaghrib) meeting. The outcome of the MPC meetings are published quarterly.

Fixed Income Market

Government Securities Government securities yield curve as at 30-June Fixed income instruments are Treasury bills and bonds. 2007, 2008 and 2009

Treasury bills with maturities between 7 and 364 days 5% are issued on a weekly basis, while Treasury bonds are issued every fortnight for tenors ranging from 2 years to 30 years. All securities are dematerialized.

The details of Government debt issuance are summarized 4% in the table below.

Auction details 3% T-bills T-bonds 91-d 182-d 1-y 2-y 3-y 5-y 10-y 15-y 20-y Auction frequency Weekly, every Fortnightly 30-Jun-09 30-Jun-08 30-Jun-07 Tuesday Source: Bank Al-Maghrib Auction method Dutch Dutch Settlement cycle T+6 T+6 Access open to all investors Non-Government Securities Minimum bid 100 000 dirhams The Moroccan market has corporate issues with maturi- amount ties that range from 7 days to 30 years. Foreign investors Eligible Certificate of Deposit (CDs) issued by banks have tenors between 10 days and 7 years whereas Commercial Paper As of 31 July 2009, the total outstanding Government debt (CPs) is issued with a maximum maturity of 1 year. There was MAD 252 billion, with more than 53% maturing within is no municipal bonds market in Morocco. 5 years, 21% between 5 and 10 years and 24% between 10 and 20 years. Interest on Government securities is Intermediaries payable annually with bullet repayment of the principal. There are no restrictions to participation in the primary market. The opposite graph illustrates the changes in the Govern- ment yield curve over the last three years. All investors, including foreign investors, have equal access to the primary and secondary debt market via primary Morocco 109 dealers selected by the Bank Al-Maghrib. Primary dealers Primary Market have a responsibility of providing liquidity to the market The Kingdom of Morocco and major corporations (includ- by executing a minimum number of transactions each ing financial institutions) regularly issue debt in the local year for their clients. capital market to fulfil their financing needs at competi- tive prices. Investors The Moroccan debt market is very active with a diversified Secondary Market investor base including insurance companies, commercial The secondary market in Morocco is relatively liquid banks, Bank Al-Maghrib, foreign investors, and others. and operationally efficient. The trading volume declined As of 31 July 2009, the main investors were Insurance steadily from MAD 100 billion in 2004 to MAD 74 billion Companies (33%), Mutual funds (25%) and Commercials in 2008 and MAD 54 billion during the first semester banks (16%). Foreign investors’ participation is marginal 2009. Similarly, turnover market activity dropped by and Bank Al-Maghrib intervention is limited to the sec- more than 20% over the same period. Public and private ondary market. sector securities are traded over-the-counter and prices are quoted either in MAD or as a percentage of notional. Holdings by category of investor as at June 30, 2009 (in percent)

Insurance Commercial Banks, companies, 25.8% 26.9%

Others, 15.6% Pension & Mutual Funds 31.3%

Bank al-Maghrib, 0.4%

Source: Bank Al-Maghrib

Foreign Exchange Market

The Moroccan Dirham (MAD) is pegged to the value of a MAD per Unit of USD (Year End) basket of currencies, reflecting the country’s key trading 10 partners. These currencies are the Euro and the USD, with weights of 80% and 20% respectively.

Bank Al-Maghrib intervenes in the market to keep rates 8 within a trading band of +/0.3% around the target rate that is set daily.

The opposite graph provides historical levels of the MAD 6 against the USD. Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bank Al-Maghrib 110 Morocco

Derivatives Market

The Moroccan onshore derivatives market comprises mainly foreign exchange forwards, forward rate agree- As a hedge against interest rate risk, resident borrowers ments (FRAs) and interest rate swaps. Following the are allowed to contract interest rate swaps up to two years, current account liberalization reforms in 2008, forward and forward rate agreements for a tenor of six months exchange contracts and cross-currency forwards are now cash in 6 months (6x6). available to commercial banks and other financial operators for unlimited maturity. However, FX options are limited There is a small offshore market limited to spot and to tenors of up to 12 months. There is an onshore foreign forwards of up to two years. exchange tax of 0.1%

Regulation and Taxation

Regulation (ii) Bank Al-Maghrib, the Central Bank, which supervises The Moroccan financial system’s regulatory framework the banking and insurance sectors, in coordination with is divided into two main components: the Ministry of Finance that approves commercial banks’ licenses. (i) The “Conseil Déontologique des Valeurs Mobilières”, which supervises the Casablanca Stock Exchange (CSE), Taxation while the “Association Professionnelle des Sociétés de In general, interest income attracts withholding tax at Bourses” (APSB) formulates the rules and procedures for source while capital gains are subject to corporate tax. trading;

Clearing and Settlement

Established in 1997, Maroclear is the Central Securities De- the Delivery versus Payment (DVP) method. Clearing is pository. The Treasury and Bank Al-Maghrib are amongst done in bulk at business closing date. its shareholders, with a participation of 25% and 20%, respectively. Maroclear’s key functions include acting as Day-count conventions are maturity based. Act/360 is the securities custodian and overseeing the delivery and applied for maturities lower than one year and Act/Act is payment system. Securities are identified with ISIN codes, applied thereafter. Securities are settled on T+6. entirely dematerialized, and automatically settled using

Regulatory Contacts Bourse de Casablanca Central Bank of Morocco Angle Avenue des Forces Armées Royales et Rue Arrachid 277, Avenue Mohamed V, Rabat-Morocco Mohamed, Casablanca, Morocco Tél: 212-22-45626/27 Tél: 212-37-702626 Fax: 212-22-452625 Fax: 212-37-707838 E-mail : [email protected] E-mail : [email protected] Website: www.casablanca-bourse.com Website: www.bkam.ma

Morocco 111

Le conseil Déontologique des Valeurs Mobilières 6, rue Jbel Moussa, Agdal Rabat Tél : 212-37-688900/01/02 Fax : 212-37-688946 E-mail: [email protected] Website: www.cdvm.gov.ma Mozambique

2009 at a glance Population (mn) 22.9

Population growth (annual %) 2.3 D.R. OF CONGO TANZANIA R.D. DU CONGO Lake Nyasa Official language Portuguese Lubumbashi

Currency Metical (MZN) ZAMBIA MALAWI MOZAMBIQUE GDP (Current US$ bn) 13.7 Lilongwe GDP growth (annual %) 4.3 Nacala Nampula Lusaka GDP per capita (Current US$) 600.2 Blantyre Tete Total Debt (US$ bn) 5.2

Harare Total Debt/GDP (%) 37.9 Quelimane

CPI (annual %) 6.2 ZIMBABWE Exports of Goods and services (% of GDP) 20.9 Beira Gross Official Reserves (in US$ bn) 1.5 Gross Official Reserves (in months of imports) 4.1 BOTSWANA MZM/ per 1 USD (year end) 30.2000 Pietersburg INDIAN OCEAN Source: AfDB, Bloomberg SOUTH AFRICA Xai-Xai

Maputo Mbabane Sovereign rating as at March 24, 2010 SWAZILAND Long-term Local Currency Foreign Currency Fitch B+ B Moody’s Not rated Not rated S & P B+ B+

Source: Bloomberg

Summary

»» Mozambique’s financial system has witnessed impressive growth in recent years. »» There is a nascent fixed income market that includes both sovereign and corporate bonds. »» Governmental issuance is composed of Treasury bills as well as longer term Treasury bonds, with maturities of up to 10 years. »» The investor base is dominated by commercial banks. »» The secondary market is still underdeveloped and is transacted at the Mozambique Stock Exchange (BVM). »» There is a benchmark yield curve which is computed by the Central Bank. 114 Mozambique

Monetary Policy and Money Market

Monetary policy The BDM focuses on maintaining monetary aggregates The Central Bank, the Banco de Mozambique (BDM), at a sustainable level. It is considering switching its focus is responsible for keeping inflation under control. The to an explicit inflation-targeting policy. BDM uses Treasury bills sales to contain liquidity and foreign exchange sales to control inflation resulting from Money Market imported goods.1 At the moment, the Central Bank does The Interbank Money Market is still embryonic with not issue bills. only 6 out of 14 banks adhering to the Maputo Interbank Offered Rate (MAIBOR) agreement. 1 Source: OECD, African Economic Outlook 2009: Country Notes Volume 1 and 2.

Fixed Income Market

Government Securities The amortization profile of Government and Corporate There are various Treasury bills available: 91, 182 and 364 bonds is varied. Interest rate payments are usually floating. days. These instruments are sold primarily to commercial banks in the context of the Central Bank’s open market Non-Government Securities operations. The allocation of 91-days bills increased by The number of companies using bonds as a source of 108% in 2008 and corresponded to 11.2 % of total outstand- financing is still small and limited to a few key sectors: ing Treasury bills. The amount subscribed for 364-days financial sector companies, insurance companies and bills was 56.4% of the total outstanding, while 182-days telecommunication companies. bills accounted for 32.1% of total Treasury bills in 2008. Intermediaries Government bonds have existed since 1999. From 1999 The primary dealers for T-Bills are commercial banks, the to 2009, a total of 10 Treasury bonds were issued by majority of which are foreign-owned, namely Standard the Government and listed on the Stock Exchange. The Bank, Millennium Bim, BCI and Barclays. maturities of Treasury bonds extend from 3 to 10 years. There is also one perpetual Treasury bond. Government and Corporate Bonds are transacted in the stock exchange. There is only one dealer operating in The graph below illustrates the maturity profile of Gov- Mozambique, the “Banco Portugues de Investimento” ernment of Mozambique securities. (BPI Dealer). All other brokers in Mozambique are part of commercial banks. Maturity profile of Government of Mozambique securities as at June 30, 2009 (in Meticais) Investors Source: Bank of Mozambique The investor base is mostly composed of commercial

Billions banks. As of early 2010, there were 14 banks operating 25 in the country.

20 There are also some insurance companies and a small 15 number of investment management institutions active in the market. 10

5

0 0-1 year 1-3 years 3-5 years 5-10 years 5-15 years 15-20 years Tenor Mozambique 115

Holdings by category of investor as at June 30, 2009 (in percent) Central Bank 8%

Non bank financial 16%

Commercial Banks 76%

Source: Mozambique Stock Exchange (BVM, 2009)

Foreign Exchange Market

The Mozambican Metical (MZM) is an independent, MZM per Unit of USD (Year End) freely floating currency. Access to foreign exchange was Source: Bloomberg liberalized by the approval in 1996 of a new Exchange 35 Control Regulation Law. 30 Foreign exchange retention accounts are permitted for the entirety of foreign exchange earnings. 25

Investment registration and repatriation application pro- 20 cedures must be adhered to in order to repay foreign loans and repatriate invested capital, profits, and dividends in 15 excess of USD 5,000. Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

The opposite graph illustrates the historical levels of the Metical against the USD.

Derivatives Market

There is no derivatives market.

Regulation and Taxation

Regulation operations. The BVM is a public institution under the In 1998 the Government of Mozambique developed a secu- guardianship of the Ministry of Finance. rities market regulation. One year later, the Mozambique Stock Exchange (BVM) was incorporated and started its 116 Mozambique

The Central Bank is the entity responsible for the supervi- sion and surveillance of both the primary and secondary Taxes applying to fixed income vary according to the securities market, as well as all market operators. issuing conditions of each instrument.

Taxation The following taxes are applicable to investment income: corporate capital gains tax rate of 32%, withholding tax interest of 20%, and personal capital gains tax of 32%.

Clearing and Settlement

Trading, clearing and settlement are carried out via an system with direct access to the trade session allows electronic system. Since 2000, a remote trading network stockbrokers to trade via the internet.

Regulatory Contacts Banco de Moçambique Bolsa de Valores de Moçambique Av. 25 de Setembro 1695, P.O. Box Avenida 25 de Setembro No. 1230, 423, Maputo, Mozambique 5º Andar, Bloco 5 Tel: +258-21-354600 or +258-21-354700 Maputo, Moçambique Fax: +258-21-323712 E-mail: [email protected] E-mail: [email protected] [email protected] [email protected] [email protected] Website: www.bancomoc.mz Namibia

2009 at a glance

Population (mn) 2.2 ANGOLA ZAMBIA Population growth (annual %) 1.9 Rundu Official language English Tsumeb Currency Namibia Dollar (NAD) Otjiwarongo GDP (Current US$ bn) 8.2

GDP growth (annual %) -1.4 Swakopmund Windhoek GDP per capita (Current US$) 3,765.7 BOTSWANA Total Debt (US$ bn) 2.2 NAMIBIA Gaborone

Total Debt/GDP (%) 26.5 ATLANTIC OCEAN Keetmanshoop CPI (annual %) 9.0 Exports of Goods and services (% of GDP) 43.1 SOUTH AFRICA Gross Official Reserves (in US$ bn) 1.5 Gross Official Reserves (in months of imports) 5.1 NAD/ per 1 USD (year end) 7.3980

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch BBB BBB- Moody’s Not rated Not rated S & P Not rated Not rated

Source: Bloomberg

Summary

»» Namibia’s financial sector is well established, with close links to South Africa by virtue of its membership of the Common Monetary Area (CMA). »» A benchmark yield curve can be recreated using Government bonds with maturities ranging from the years 2012 to 2024. »» Although the Government and parastatal entities are the main issuers, there are also a few commercial banks tapping the market. »» There is a wide range of investors in the fixed income market. They include banking institutions, fund managers, insurance companies, stock brokers and public enterprises. »» Reuters codes for market data: BONNA1, BONNA2 and BONNA4. 118 Namibia

Monetary Policy and Money Market

Monetary policy Since its launch, the facility has progressively replaced Monetary policy in Namibia is supported by the fixed peg the existing intraday and overnight repos as a preferred of the Namibia Dollar to the South African Rand. financing solution for local banks.

The main goal of the Central Bank is to achieve price In addition, the Bank of Namibia prints bills benchmarked stability. on the 91-day Treasury bills rate. These bills are available exclusively to banking institutions. The Bank of Namibia uses several tools to implement monetary policy. The Central Bank’s main operational instruments are the repo rate and a seven day repo facility was put in place in 2008.

Fixed Income Market Government Securities Government issued paper constitutes a large portion and 2024. The 2024 instrument is the longest existing (approximately 67%) of the long-term securities’ market maturity in the market. Since 2006, the Government sets in Namibia. This is partly the result of a long-standing funds aside in a sinking fund for the redemption of matur- Government decision to fund the fiscal deficit in the local ing bonds: the IRS Redemption Account. This measure market, in order to promote the development of a native ensures that the principal will be available when due for financial market. None of the Government bonds are redemption without exerting unnecessary pressure on callable or have other special features. The graph below the financial resources of Government. From the inves- illustrates the Government Yield Curve as of June 30th , tor’s perspective, this account instils greater confidence 2007, 2008 and 2009. in the country’s ability to repay the principal. The latest three bonds maturing in 2007, 2008 and January 2010 Government securities yield curve as at 30 June, were redeemed using proceeds from this account. Due to 2007, 2008 and 2009 the size of the local bond market, close trading ties with South Africa and low bond market liquidity, Namibian Source: Bank of Namibia bonds are traded at a spread relative to the prevailing yield on the corresponding benchmark bond in South Yield 12% Africa. Government bills and bonds are transacted via a Book Entry System (BES) in which records of ownership are electronically kept. 10% Maturity profile of Government of Namibia securities as at June 30, 2009 (in NAD) 8% Billions 6

5 6% 91 day 182 day 1 year 2 years 3 years 5 years 10 years 15 years 4 Tenor 30-Jun-09 30-Jun-08 30-Jun-07 3

2 Treasury bills are issued on a discount basis for maturities of 91, 182 and 365 days. The Republic of Namibia issues 1

bonds known as Internally Registered Stock (IRS). The 0 first bonds were printed in 1992 and had maturities of 0-1 year 1-3 years 3-5 years 5-10 years 5-15 years 15-20 years less than six years. Currently, there are four outstanding Source: Bank of Namibia Government bonds, with a total notional of NAD 5.4 bil- lion. These instruments will mature in 2012, 2015, 2018 Namibia 119

Non-Government Securities The issuance of bonds by parastatals, commercial banks Holdings by category of investor as at June 30, and other institutions has increased noticeably in recent 2009 (in percent) years. The total outstanding amount in corporate bonds increased from NAD 360 million in 2004 to NAD 2.7 Commercial billion in December 2009. Seven parastatal bonds ac- Banks counted for 58% of non Government issuances, with the 19.22% remaining 42% composed exclusively of issues by three commercial banks.

Non bank Intermediaries financial institutions 80.78% The Central Bank acts as an agent for the Government for the issue and redemption of Republic of Namibia bonds. Parastatals, banks or companies are allowed to issue bonds directly. Source: Bank of Namibia In addition, all bonds are listed on the Namibia Stock Exchange (NSX). Interested participants can buy and/or The banking sector is quite active and mature. Out of the sell bonds on the NSX through qualified and registered existing four commercial banks, three are partly foreign stockbrokers. owned. In addition, there are a few specialized banks: Agribank (an agricultural bank), Nampost Savings Bank The number of secondary market transactions has stepped and the Development Bank of Namibia. The combined up in recent years. The turnover ratio for Government assets of commercial banks were approximately USD 6 bonds increased from 11 % in 2004 to close to 21% dur- billion in June 2009. ing 2009. The Namibian insurance sector includes more than 15 Investors long-term insurers, a similar number of short-term in- The investor base is composed primarily of asset manag- surance companies and one re-insurer. There are close ers investing on behalf of pension funds, as illustrated in to 40 asset management companies and 10 unit trust the chart below. Insurance companies, banks and some management companies. Other non-bank financial in- larger parastatals are also active institutional investors. stitutions comprise 135 pension funds, of which 10 are Most of these institutions are privately owned with strong umbrella funds. links to South Africa. Non-resident capital flows are generally unrestricted.

Foreign Exchange Market

Namibia is a member of the CMA together with South NAD per Unit of USD (Year End) Africa, Swaziland and Lesotho. Since the Namibia Dol- lar (NAD) is pegged at par with the South African Rand, 10 Namibia follows the exchange rate policy determined by the South African Reserve Bank. 8 Both the Namibia Dollar and the South African Rand are legal tender in the country. The Namibia Dollar is con- vertible regionally into the Rand, but it is not convertible 6 internationally.

4 Non-resident capital flows are generally unrestricted; Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 capital, profits and dividends can be repatriated; and ex- change control limitations apply to resident capital flows. The graph below provides historical levels of the NAD against the USD. 120 Namibia

Derivatives Market

Although Namibia does not have a derivative exchange, there are no restrictions for market participants to conduct over-the-counter derivatives.

Regulation and Taxation

Regulation The Namibian Income Tax Act exempts interest income Regulatory oversight is shared between various public from Treasury bills and bonds, received by or accrued to institutions. The Bank of Namibia (BON) has regulatory either any person (other than a company) or any external authority for the banking sector in the country. The company not carrying on business in Namibia is exempt Namibia Financial Supervisory Authority (NAMFISA) is from tax., from TBs and bonds issued by the Govern- responsible for the pension sector, the insurance sector ment or any representative authority or local authority and capital markets. Issuance of corporate bonds is also in Namibia. regulated by NAMFISA. The Income Tax law stipulates that the withholding tax Taxation of 10% on interest must be paid for the benefit of the State Capital gains are usually not taxable. Determination of Revenue Fund by any person (other than a Namibian the taxability of capital gains falls under the mandate of company). the Inland Revenue. Capital gaines are taxed when they are realised.

Clearing and Settlement

Settlements by commercial banks can be made through by individuals exceeding NAD 5 million should be paid NISS (Namibia Inter Bank Settlements System), or authori- through the NISS system. zations to debit the accounts of those banks with the Bank of Namibia. For others, i.e. businesses and individuals, Successful bidders are required to provide payment at settlement can be made in the form of bank cheques. the Bank of Namibia, not later than 10.00 hours on the Personal cheques and cheques certified or guaranteed by next business day following the announcement of the banks are not acceptable for settlement. All amounts paid allotment on the auction date.

Regulatory Contacts

Bank of Namibia Namibia Stock Exchange P.O. Box 2882, Windhoek, Namibia P.O.Box 2401, Windhoek, Namibia Tel: +264-61-2835111 Tel: +264-61-227647 Fax: +264-61-2835151 Fax: +264-61-248531 Website: www.bon.com.na E-mail: [email protected] Website: www.nsx.com.na Nigeria

2009 at a glance Population (mn) 154.7 NIGER Niamey CHAD Population growth (annual %) 2.3 N'Djamena Official language English Kano Maiduguri

Currency Naira (NGN) BURKINA FASO BENIN GDP (Current US$ bn) 173.4 NIGERIA Abuja

GDP growth (annual %) 3.0 Llorin Oshogbo GDP per capita (Current US$) 1,120.7 Ibadan Porto Novo Total Debt (US$ bn) 4.9 Lagos CAMEROON Total Debt/GDP (%) 2.8 Uyo CENTRAL AFRICAN REP. CPI (annual %) 10.1 Malabo Yaoundé

G

ATLANTIC OCEAN U I N Exports of Goods and services (% of GDP) 30.1 E E E Q U A T. Gross Official Reserves (in US$ bn) 47.2 EQ . G U IN EA GABON CONGO Gross Official Reserves (in months of imports) 12.3 NGN/ 1 USD (year end) 149.50

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch BB BB - Moody’s Not rated Not rated S & P B+ B+

Source: Bloomberg

Summary

»» Government securities yield curve has tenors up to 20 years. The benchmark points are 91 and 182-day for Treasury bills and 3, 10 and 20-year for Treasury bonds. »» The Debt Management Office (DMO) publishes a quarterly issuance calendar. »» The secondary market is dominated by banks and discount houses and has increased liquidity. »» Custody of Treasury bills is with the Central Bank of Nigeria (CBN) while the Central Securities and Clearing System (CSCS) holds the Treasury bonds. Settlement is with the CBN and is at T+1 cycle for Treasury bills and T+2 cycle for Treasury bonds »» Challenges currently being addressed include the need to the develop the interbank bond Repo market and to reduce the high issuance costs for corporate bonds, efforts to address these are at advanced stages. »» Bloomberg and Reuters codes for market data: • Bloomberg: BTMM NG, NGN Curncy, NIGB Corp, NGSEINDX Index. • Reuters : NGN/USD, NGNIBOR, NGNFIX 122 Nigeria

Monetary Policy and Money Market

Monetary policy The aim of monetary policy is to develop a market-oriented For the period July 2009 to 31 March 2010, the Central financial system for effective mobilization of financial Bank of Nigeria (CBN) influenced the short-term money savings and efficient resource allocation. This is achieved market rates from overnight to 3 months through caps by market-based approaches, by targeting monetary ag- and floors around the monetary policy rate (MPR). During gregates through open market operations for monetary this period all interbank deposits and pension fund place- and price stability in the medium term. Other policy instru- ments were guaranteed by the CBN. These were policy ments include minimum reserve requirements, discount responses to the need to increase interbank liquidity and window, foreign exchange intervention and control of reduce spreads in the money market. the flow of public sector deposits in and out of banks. Money Market The CBN is also mandated to maintain foreign competitive- The 91-day NIBOR is the most frequently used money ness of the Naira (NGN), supervise the financial system, market benchmark for debt issues with less than 5 years act as lender of last resort to the banking system and an to maturity. This benchmark can be volatile and some advisor to Government. issuers and investors have preferred the 91 and 182-day Treasury bills.

Fixed Income Market

Government Securities National Treasury bills (NTB) are issued by the Central there have been several tenors issued at the same auction. Bank of Nigeria, with authority from the Debt Manage- The minimum bid amount for Government bonds is NGN ment Office (DMO). Tenors issued are 91, 182, and 365-day 10,000 (approximately USD 67), with multiples of NGN bills. In the shorter part of the yield curve, issuance em- 1,000 thereafter. Total bonds’ outstanding volume as at phasis is on the 365-day bills. Treasury bills are auctioned 30 June 2009 was NGN 2,81 billion (USD 18.8 billion). on a weekly basis on a multiple price system and settle on a T+1 cycle. Treasury Certificates (NTCs) are similar Issuance volumes are highest in the short end of the curve( to Treasury bills but are medium-term instruments with up to 1 year) or for longer-term securities, with maturities tenors of 1 and 2 years. exceeding 3 years, as seen in the graph below.

Federal Government of Nigeria Bonds (FGN) have similar Maturity Profile for FGN securities as at June 30, issuance guarantees as the Treasury bills and certificates, 2009 with tenors of 3-, 5-, 7-, 10and 20-years. All these instru- Source: Data from CBN – currency is Nigerian Naira ments are fixed rate instruments, issued in accordance Billions 1,200 with a set issuance calendar. Auctions typically occur once a month and are allotted at a single price. Only primary 1,000

dealers can take part in primary auctions. Any investor 800 looking to bid for bonds at the auction needs to go through a primary dealer. All Government bonds are listed on the 600

Nigeria Stock Exchange. Bonds are reopened regularly to 400 improve their liquidity. 200 A quarterly calendar is published in advance by the DMO 000 0-1 year 1-3 years 3 years and over indicating the dates and amounts per tenor to be issued and whether or not the issues will be reopened. Lately Nigeria 123

The graph below illustrates the FGN securities yield curve to this has been the high issuance cost for bonds in the as at end of June 2008 and 2009. market. Other impediments include the illiquid nature of the market as well as the unavailability of tax exemption Government securities yield curve as at 30 June status that is conferred on FGN Bonds. Issuance costs have 2008 and 2009 been reviewed downwards and more issues are expected Yield in the corporate bond market in the coming years. 15% Companies often finance their operations through Banker’s 12% acceptance and Commercial paper (CP) though these are not actively traded at present and there is no liquid market 9% for Negotiable certificates of deposit and promissory notes.

6% Tenors for Commercial paper are typically 30 to 180 days and are sold either clean or guaranteed. Clean CP will attract higher interest costs to the issuer. The CBN 3% 91 day 182 day 1 year 2 years 5 years 10 years 20 years recently restricted the tenure for commercial bank CP for Tenor 30-Jun-09 30-Jun-08 both issuance and rollover to a maximum of 270 days. Source: Data from CBN Securities and Exchange Commission rules require is- State Government bonds are issued by state Governments suers seeking to enter the bond market to have a local for development projects. Ten of the 36 states have issued credit rating. bonds. The most recent bond issues have been by Kwara, Lagos, Imo, Niger and Kebbi. Intermediaries The Primary Dealer System comprises 6 banks and 5 discount houses. These banks and discount houses ap- Typically these bonds have tenors longer than 1 year pointed by the DMO act as authorized dealers in FGN and pay a fixed rate at a spread above FGN bonds for bonds. They are required among other functions to take comparable maturities. They are backed by the Federal up, market and distribute primary issues of FGN bonds, Government of Nigeria and can be used as collateral dur- and provide for secondary market liquidity in FGN bonds ing Repos with the Central Bank. by making two-way quotes in all market conditions.

The table below provides information on outstanding Brokers usually file applications for the listing of bonds debt stock per instrument. and obtain NSE approval. They also participate in bond trading. FGN Domestic Debt Stock Outstanding as at December 31, 2009 Investors Instrument Amounts in Billions of Percentage The holdings of FGN bonds by category of investors as Naira of 30 June 2009 were as follows: FGN Bonds 1,974.93 61% NTBs 797.48 25% Holdings by category of investor as at June 30, Treasury bonds 392.07 12% 2009 (in percent)

Development Stock 0.52 0% Other 5% Promissory notes 63.03 2% Central Total 3,228.03 100% Bank Source: Debt Management Office 10%

Non bank public Non-Government Securities 25% Historically, manufacturing companies have been frequent Banks and issuers of debentures, but have been absent from the discount houses market for the past decade as they sought funding from 60% the banking sector and the equity market. Due to the poor performance in the equity market in the last year, many corporate borrowers are considering tapping the fixed income market for funding. A main impediment Source: Central Bank of Nigeria – June 30, 2009 124 Nigeria

The banking sector is comprised of 24 deposit money The minimum bidding amount for non-competitive bids banks, 6 discount houses and 5 development finance is NGN 10,000 and the price is determined by demand institutions. This sector is the major investor in FGN and supply for the bonds. securities with holdings of 60% as at the end June 2009. Primary Market There are 19 licensed specialist firms that manage pension In 2009 alone, the DMO issued different series of FGN funds. The Pension fund industry is required to hold 65% bonds going out to a 20-year bond – valued at NGN 726.5 of its investments in Treasury paper. Pension funds can billion. The DMO boosts liquidity in the bond market be invested in bonds and any other Government security through the continuous reopening of FGN bonds. without limitation. Up to 5% of pension fund assets can be invested in eligible bonds/debt instrument issued by Secondary Market any one State Government. Current holdings of pension Historically, FGN bonds have been trading over-the- funds in FGN securities is estimated at NGN 162.1 billion counter, although they are listed on the Nigerian Stock as of November 2009. There has been growth in pension Exchange with the purpose of facilitating retail market funds’ investment in FGN securities. trades.

Nigeria adopted insurance sector reform as part of its eco- The Primary Dealer System has provided significant liquid- nomic restructuring program, which was implemented in ity to the bond market. The average deal size is estimated several stages during 2004-2007. Insurance Companies can at NGN 150 million. Typical daily turnover in the second- invest up to 100% of their funds in Government securities. ary bond market is estimated at around USD 800 million (USD 925 million for NTBs)1. For the whole of 2009, the Foreigners are allowed to invest in the bond markets,but turnover on FGN bonds traded OTC was estimated at NGN are restricted to Government securities with a tenor of 18.51 trillion2. FGN bonds, particularly bonds with 3-years 1 year and above. However, holders of longer bonds can (56%), 5-years (40%) and 7-years maturities, continue to invest in instruments of less than a year to maturity such dominate secondary market trading. as commercial paper, bankers acceptances and negotiable certificates of deposit. Foreign investors have a lock-in Securities with combined issuance of less than NGN 75 period for the first investment of one year. Banks that billion trade in tranches of 50 million whereas those receive foreign investments issue certificates of capital above NGN 75 billion trade in tranches of 100 million. importation (CCI) which allow repatriation of investment The day-count convention is Actual/Actual. funds and earnings.

Retail investors access Government securities through 1 Standard Chartered Bank Report – Guide to Nigeria Domestic mutual funds and sub-accounts of primary dealers. Inves- Bond Market 2009 tors hold individual accounts on the central depository. 2 2009 NSE report

Domestic Debt Outstanding by Holder as at December 31, 2009 in Billions of Naira Instrument Central Bank Banks and Discount Houses Non-bank Public Sinking Fund Amount Outstanding FGN Bond 0.00 1,274.48 700.45 00 1,974.93 Treasury Bills 1.90 0.00 644.78 150.80 797.48 Treasury Bonds 258.25 0.00 0.00 133.82 392.07 Development Stock 0.00 0.10 0.32 0.10 0.52 Promissory Notes 63.03 0.00 0.00 0.00 63.03 Total 323.18 1,274.58 1,345.55 284.72 3,228.03 % of Total 10.01% 39.48% 41.68% 8.82% 100.00% Source: Nigeria Debt Management Office

Nigeria 125

Foreign Exchange Market

The Nigerian Naira is governed by a managed float policy NGN per Unit of USD (Year End) with no stipulated boundaries and is not fully convert- 150 ible. Intentions of full liberalization have been expressed.

The market is a two-tier market: the CBN–authorized dealer auction market and the interbank market. The CBN 120 window is a managed float via bi-weekly wholesale Dutch auctions to authorized dealers. The interbank market is driven by demand and supply. The spread between the two markets has narrowed significantly over the years as the interbank rates normally follow the CBN–author- 90 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 ized dealer rates. Estimated daily transaction volume approximates USD 100 million with spreads of 100 bps. Source: Bloomberg The opposite graph provides historical levels of the NGN against the USD.

Derivatives Market

Foreign exchange forwards are subject to a maximum The non-deliverable forward market is underdeveloped tenor of three years, compared to 2006 when they were and has very poor liquidity. Tenors up to 6 months are only offered up to 180 days. Authorized dealers are now available. allowed to engage in swap transactions between them- selves or with retail/wholesale customers. These transac- In 2006, the Abuja Commodities Exchange was set up to tions – deliverable forwards and swaps are restricted to develop the trading of futures and options on commodities, a maximum tenor of three years. although this is yet to become an active market.

Regulation and Taxation

Regulation All financial sector regulatory agencies in Nigeria are part The Securities and Exchange Commission (SEC) is the of the Financial Services Regulation Coordinating Com- apex regulator of capital markets, overseeing all opera- mittee (FSRCC), which coordinates supervisory activities tors, activities and transactions in capital markets. The across the financial sector. SEC specifically regulates the corporate bond and sub- sovereign bond markets. Other regulators are the National Pension Commission (PenCom) and the National Insurance Commission (NAI- The Debt Management Office (DMO) is authorized by COM). statute to issue FGN bonds on behalf of the Federal Government. The DMO also regulates the activities of the Taxation bond market and the primary dealers/market makers and There is no tax on interest earned on Government securi- has a mandate to carry reforms to make the Government ties. There is no capital gains tax on investments in the securities market more liquid. capital markets. Interest on treasury bills is taxed as part of corporate interest income at the corporate income tax The Central Bank of Nigeria (CBN) is the issuing house rate. Interest income on Non-Government bonds attracts and the registrar of FGN bonds. withholding tax of 10% and is also taxed as corporate inter-

126 Nigeria

est income with consideration of taxes already withheld. Tax rates are the same for both resident and non-resi- A proposal has been forwarded to the FGN to consider dent investors. Nigeria has tax treaties with Czechoslo- applying tax exempt status to sub-sovereign and corporate vakia, France, the Netherlands, Pakistan and the United bond issues. Interest earned on Commercial paper does Kingdom. not attract withholding tax.

Clearing and Settlement

The Central Securities Clearing System (CSCS) provides the Government bonds settle on a T+2 cycle and are dema- electronic book-entry clearing of all bonds traded on the terialized. The Central Bank of Nigeria Interbank Funds NSE and delivers all bonds traded on the OTC market. Set- Transfer (CIFT) enables the different settlement systems tlement is facilitated by the Nigerian Interbank Settlement to interlink to the Real Time Gross Settlement (RTGS) and System (NIBSS). The CSCS holds each individual account enhance delivery versus payment. CIFT is also connected separately on the electronic register and therefore each to Euroclear and Clearstream. The CBN is the settlement individual investor can have an account with the CSCS or bank for FGN and sub-sovereign bond issues. as a sub-account under a general account. Settlement for securities on the CSCS can be done through direct credits FGN bonds are traded exclusively on the Reuters fixed into the CSCS accounts of bondholders. income trading platform. However, state and corporate bonds are traded solely via OTC (without access to any electronic platform as at the end of 2009).

Regulatory Contacts Central Bank of Nigeria Securities and Exchange Commission P.M.B. 0187, Garki Abuja, Nigeria Zaria Street, Garki, P.M.B. 315 Garki-Abuja, Nigeria Abuja, Nigeria Tel: +234-9-2342132-4/234332-6 Tower 421, Constitution Avenue, Fax: +234-9-23435363 Central Business District, Abuja, Nigeria E-mail: [email protected] Tel: +234-9-2346272-3 Website: www.cenbank.org Fax: +234-9-2346276 E-mail: [email protected] Nigerian Stock Exchange, Website: www.secngr.org P.O. Box 2457, Lagos, Nigeria Stock Exchange House, 8th, 9th and 23rd Floor, 2/4 Debt Management Office Nigeria Customs NDIC Building (1st Floor), Street, Lagos, Nigeria Plot 447/448 Constitution Avenue, Central Business Dis- Tel: +234-1-2660287 trict, Fax: +234-1-2668724 P.M.B. 532, Garki Abuja, Nigeria. Telephone: +234-9-672 E-mail: [email protected] 5629 Website: www.nigerianstockexchange.com Fax: +234-9-523 7396 E-mail: [email protected] Website: www.dmo.gov.ng Rwanda

2009 at a glance UGANDA Population (mn) 10 Kabale DEMO. REP. Population growth (annual %) 2.8 OF CONGO Ruhengeri Byumba Official language Kinyarwanda French Goma English Gisenyi TANZANIA Currency Rwanda Franc (RWF) Kigali GDP (Current US$ bn) 4.3 Kibuye Gitarama Kibungo GDP growth (annual %) 4.7 RWANDA

Gikongoro GDP per capita (Current US$) 426.9 Cyangugu Ngara Butare Kirundo

Total Debt (US$ bn) 0.8 BURUNDI Total Debt/GDP (%) 19.6 CPI (annual %) 8.5 Exports of Goods and services (% of GDP) 8.1 Gross Official Reserves (in US$ bn) 0.6 Gross Official Reserves (in months of imports) 5.0 RWF/ per 1 USD (year end) 571.24

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch B- B- Moody’s Not rated Not rated S & P Not rated Not rated

Summary

»» Rwanda has recently begun developing the necessary regulatory framework for stable and successful capital markets. »» The fixed income market in Rwanda is at an early stage of development. Most of the existing bond issues are govern- ment sponsored and relatively short term, with maturities not longer than three years. »» In addition to liquidity management instruments such as Treasury Bills, and in order to develop a benchmark yield curve, the Central Bank (National Bank of Rwanda) has lately started to issue longer dated securities. »» Similarly to many other African countries, the investor base is dominated by commercial banks. »» Information on interest rates is published in the Central Bank’s website. 128 Rwanda

Monetary Policy and Money Market

The National Bank of Rwanda’s main policy goal is price stability. This objective is achieved primarily by main- All policy decisions are taken by a Monetary Policy Com- taining a tight control over money supply. Although no mittee. There is no pre-established frequency for policy formal review process has been initiated, the Central meetings. Actions will be taken when needed and com- Bank is discussing the adoption of an explicit inflation- municated subsequently. targeting policy. The Central Bank publishes a semi-annual monetary policy The Central Bank controls banking sector liquidity via review for general information purposes. overnight operations, 7-day operations, repurchasing operations and the issuance of Treasury bills.1

1 African Economic Outlook, Rwanda

Fixed Income Market Government Securities Investors There are two types of Treasury bills available in the The primary market is open to all investors, including market: bills used for liquidity management purposes and residents and non-residents, as long as they have bank bills used to finance the budget deficit. In both cases, the accounts in the country. Central Bank is the issuing agent and the maturities range is 13, 26 and 52 weeks. The day discount basis is A/364. The investor base is heavily dominated by commercial banks, as seen in the chart below. Bills are sold at a weekly auction conducted by the Cen- tral Bank. The minimum transaction size for bills and Holdings by category of investor as at June 30, bonds is RWF 50 million for competitive bids and RWF 2009 (in percent)

10 million for non-competitive bids. All subscriptions are Pension funds 2% Insurance Companies 2% denominated in local currency.

Other In 2008, in an effort to expand the national yield curve 13% and encourage the development of capital markets in the country, the Government issued longer-term Treasury bonds, with maturities of two and three years. These

instruments pay a fixed rate coupon and have a bullet Commercial Banks type repayment. The proceeds from the sale of Treasury 83% bonds were used to finance the budget.

In addition to rolling over one of the 2-year bonds, the Government plans to issue 3 and 5-year bonds in 2010.

Intermediaries Source: National Bank of Rwanda The National Bank of Rwanda is the issuing agent on behalf of the Government. There are no primary dealers at present.

Rwanda 129

Foreign Exchange Market

The Rwandan franc (RWF) follows a managed float regime. RWF per Unit of USD (Year End)

The National Bank of Rwanda has the authority to su- 600 pervise and coordinate the foreign exchange market. The Central Bank is also responsible for appointing authorized banks and foreign exchange dealers.

550 There are no exchange controls applicable to repatriation of foreign investments.

The opposite graph illustrates the historical levels of the 500 Rwandan Franc against the USD. Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bloomberg

Derivatives Market

Although currently there is no derivatives market in The foreign exchange forward market has been author- Rwanda, there are plans to develop one in the future. ized, but is not yet in operation.

Regulation and Taxation

Regulation the Central Bank was given the mandate of supervision The National Bank of Rwanda regulates the Fixed Income and regulation of non-bank financial institutions including and Money markets. pension funds and insurance companies.

Capital markets are under the supervision of the Capital Taxation Market Advisory Council (CMAC). The council’s mission Interest on securities, dividends and capital gains are all is to establish capital markets in the country. taxable by 15%. A capital market policy on tax incentives will soon be presented to lawmakers. It is expected these As part of its statutory mandate, the National Bank of tax incentives will boost the level of long term savings. Rwanda regulates and supervises banking activity. In 2007,

Clearing and Settlement

The Central Bank is in charge of clearing and settlement Markets Department of the Central Bank delivers the of Government securities. The delivery process is still securities to the beneficiary accounts. manual. The day after the transaction, the Financial

130 Rwanda

Regulatory Contacts Banque Nationale du Rwanda Capital Market Advisory Council B.P 531 Ecobank Building Av. Paul VI KIYOVU KIGALI – RWANDA 5th Floor, Avenue de la Paix Tel. :( +250)59142200/574282/501569 P.O. Box 6136 KIGALI – RWANDA Fax :( +250)572551/577391/572961/576197 Tel.: (+250) 252 500 335 E-mail: [email protected] Website: www.cmac.org.rw Website: www.bnr.rw

Sao Tome e Principe

2009 at a glance Population (mn) 0.17 SAO TOME E PRINCIPE Santo António

Population growth (annual %) 1.6 Portela de Lumiar ATLANTIC Official language Portuguese OCEAN Príncipe

Currency Dobra (STD) Guadalupe Neves GDP (Current US$ bn) 0.2 GDP growth (annual %) 4.0 Trinidade GDP per capita (Current US$) 1158.3 Santana Total Debt (US$ bn) 0.08

Total Debt/GDP (%) 40.4 São João dos Angolares

CPI (annual %) 17.2 São Tomé Exports of Goods and services (% of GDP) 9.7 Gross Official Reserves (in US$ bn) N/A Gross Official Reserves (in months of imports) N/A STD/ per 1 USD (year end) 16,814.49

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» The financial sector of Sao Tome e Principe is very small and composed of a few financial institutions. »» The sector has expanded significantly since 2002: the number of operating banks increased from one in 2002 to nine by 2008. »» The Central Bank has actively tried to reform the banking system by implementing stricter requirements on capital adequacy levels and credit management. »» At present, there is no fixed income market in the country. 132 Sao Tome e Principe

Monetary Policy and Money Market

The BCSTP uses foreign exchange auctions as a monetary The BCSTP uses foreign exchange auctions as a monetary policy tool to control excessive accumulation of liquidity policy tool to manage excessive accumulation of liquidity and thereby control inflation. and thereby control inflation.

Foreign Exchange Market

The Central Bank is in charge of managing the Dobra STD per Unit of USD (Year End)

(STD) exchange rate. The exchange rate is market based 20,000 and established via auction sales. The Government is considering the adoption of a fixed currency peg against the Euro. The new currency regime will replicate the peg 15,000 of the Cape Verde Escudo. The peg will be protected by a standby credit line provided by Portugal. 10,000 The opposite graph illustrates the historical levels of the Dobra against the USD. 5,000 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bloomberg

Regulation

The Central Bank has supervisory responsibilities over management companies, foreign exchange dealers and all financial institutions, namely commercial banks, asset insurance companies.

Regulatory Contacts Banco Central de Sao Tome & Principe CP n°13 Praça da Independencia Sao Tome e Principe Phone: 00239-243700 Fax: 00239-222777 E-mail: [email protected] Seychelles

2009 at a glance Anse Mondon Silhouette SEYCHELLES Population (mn) 0.08 Machabée Mahé Glacis Population growth (annual %) 0.5 Ste-Anne Bel Ombre Victoria Official Language English/French/Creole Amirantes Islands Port Glaud Currency Seychelles Rupee

(SCR) Anse Royale INDIAN OCEAN GDP (Current US$ bn) 0.5 Quatre Bornes GDP growth (annual %) -10.2 Les Sœurs Anse Lazio Aldabra GDP per capita (Current US$) 6,268.0 Providence Group Gd Anse Félicité Islands Cosmoledo La Passe group Praslin Total Debt (US$ bn) 0.8 Farquhar Group La Digue Total Debt/GDP (%) 147.6 CPI (annual %) 27.5 Exports of Goods and services (% of GDP) 133.3 Gross Official Reserves (in US$ bn) 0.09 Gross Official Reserves (in months of imports) 1.1 SCR/ per 1 USD 11.1730

* Preliminary estimate Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch B B- Moody’s Not rated Not rated S & P Not rated Not rated

Source: Bloomberg, Fitch

Summary

»» Government securities yield curve extends to 10 years. Currently, the longest outstanding issue has 6 years to maturity. »» Treasury bill auctions are announced two months in advance by the Ministry of Finance. Currently, the issuance of Treasury bonds and the publication of the auction calendar have been put on hold. »» Secondary market trading is very limited. »» There is a need to diversify the investor base from the dominant banking sector. »» Custody of domestic Government securities is with the Central Bank of Seychelles and the settlement cycle is T+3. 134 Seychelles

Monetary Policy and Money Market Monetary Policy Since November 2008, reserve money has replaced the The most frequently used money market instrument exchange rate as the operating target of monetary policy. is the deposit auction rate called the Deposit Auction Reserve money consists of currency in circulation and Arrangement (DAA). It is a market driven rate at which commercial banks’ deposits held at the Central Bank. commercial banks lend their excess liquidity to the Cen- Quarterly targets of reserve money are set so as to achieve tral Bank. The rate is set at multiple price auctions that sustainable monetary growth. Reserve Money is man- are held every week and tenors for this facility are 7, 14 aged via reserve requirements, lending facilities (standing and 28 days. credit facility and emergency lending facility), and open market operations.

Fixed Income Market Government Securities Government Stocks Government of Seychelles Treasury bills are issued for Government stocks are long-term instruments issued by 91 days, 182 days, and 1 year. Auctions are held every the Seychelles Government for the financing of its capital Friday and all tenors are offered at each auction. Access to expenditure for a period of up to ten years. There have Treasury bills is open to all investors with registration on been no recent issuances. Outstanding amounts follow the central depository and settlement done on T+3. The in the table below. minimum bidding amount is SCR 5,000, with multiples of SCR 5,000 thereafter. Outstanding amounts at the end Maturity Outstanding Proportion of total February 2010 are provided in the table below. amount (SCR) stock outstanding 2014 70,000,000 70% Treasury Bills 2017 30,000,000 30% Tenor Outstanding Proportion of total Source: Central Bank of Seychelles amount (SCR) bills outstanding 91 day 290,000,000 18% The graph below illustrates the Government securities 182 day 568,750,000 35% yield curve. 365 day 779,300,000 48% Government securities yield curve as at February Government bond auctions have been put on hold. Out- 28, 2010 standing tenors are for 1, 2 and 6 years. Access to Treasury Yield 10% bond auctions is typically open to all investors, foreign and local, with accounts at the central depository, and settlement is done on T+3 cycle. Outstanding amounts at 8% the end of February 2010 are provided in the table below. 6% Treasury Bonds Maturity date Interest Outstanding Proportion of 4% rate amount (SCR) total bonds outstanding 2% December 10, 2010 7% 183,000,000 22% 91 day 182 day 365 day 2 years 6 years Tenor September 24, 2011 6% 86,800,000 11% November 22, 2011 8.25% 150,000,000 18% Source: Central Bank of Seychelles October 02, 2012 10% 100,000,000 12% Note: Rates for tenors longer than one year have been amended and June 04, 2016 8% 293,550,000 36% fixed at the levels shown above. Seychelles 135

Investors The banking sector consists of seven commercial banks. There are four licensed domestic insurance companies, Two of the banks are owned by the state: Seychelles Sav- namely Sacos Insurance Company Limited, H. Savy Insur- ings Bank is fully state-owned, whereas Nouvobanq is 78% ance Company Limited, Sacos Life Assurance Company owned by the state and 22% by Standard Chartered Bank. Limited and La Prudence Mauricienne Assurance Limitée. Two commercial banks are branches of foreign banks These together held SCR 128 million worth of Government (Habib Bank and Bank of Baroda) and others (Mauritius securities. The sector holds 5.9% of outstanding issues. Commercial Bank and Barclays Bank) are locally incor- porated subsidiaries. BMI Offshore Bank is owned by Retail investors access the market by submitting bids in Nouvobanq and Bank Muscat International of Bahrain, the primary market at the Central Bank. The minimum each with 50% holdings. These seven banks held SCR bid amount is SCR 5,000. 1.81 billion of the outstanding Government securities as at the end of 2009, approximately 83% of outstanding Secondary Market Government securities. There is very limited secondary market trading. In July 2009, the Central Bank formalized its intermediary role There are two pension funds in Seychelles, the Social where bondholders willing to exit their positions before Security Fund and the Seychelles Pension Fund. The maturity are matched with potential buyers. pension fund sector held SCR 0.25 billion worth of securi- In recent years, the level of activity was minimal, driven ties as at the end of 2009, representing 11.3% of the total by retail investors on the sell side and pension funds on outstanding amount. the buy side.

The Central Bank of Seychelles held SCR 1million as at the end of 2009.

Foreign Exchange Market

The Seychelles Rupee (SCR) is a free-floating currency. The The current and capital accounts have been liberalized Central Bank will only intervene in the foreign exchange and there are no restrictions on investment repatriation. market in the event of a deviation from the established Investment proceeds are freely convertible and transfer- monetary policy objectives. Intervention will be the result able in and out of the Seychelles. of constant appreciation or depreciation of the currency, or deviation from the required currency composition of The graph below provides historical levels of the SCR the foreign exchange reserves. against the USD.

20 The Seychelles Interbank Foreign Exchange Market is comprised of the Central Bank of Seychelles and all duly licensed banks, with the exception of those granted solely 15 an offshore banking license. Each participant must have a demand deposit account in SCR with the Central Bank and another account in any traded currency. These inter- 10 bank foreign exchange participants quote on a specifically designed blog site. 5 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

SCR per Unit of USD (Year End) Source: Bloomberg 136 Seychelles

Derivatives Market

There is no derivatives market.

Regulation and Taxation Regulation Taxation Effective 1 January 2010, the capital markets are regulated Government securities do attract income tax or withhold- by the Seychelles International Business Authority (SIBA). ing tax at 5% for residents and 15% for non-residents. The Central Bank regulates the banking and insurance Introduction of income tax for corporate bonds is also sectors and the Ministry of Finance regulates the pen- under consideration. There is no capital gains tax. sion fund sector.

Clearing and Settlement

The Central Bank of Seychelles is the custodian of all Government securities. All securities are dematerialized and settle on a T+3 cycle.

Regulatory Contacts Central Bank of Seychelles Seychelles International Business P.O. Box 701 Authority (S.I.B.A) Victoria Mahe Seychelles P. O. Box: 991 Tel: +248 282 000 Bois De Rose Avenue Fax: +248 323 665 Seychelles Website: http://www.cbs.sc/ Tel: (+248) 380801 Fax: (+248) 380888 E-mail: [email protected] Website: www.siba.net Sierra Leone

2009 at a glance Population (mn) 5.7 GUINEA Population growth (annual %) 2.4 Official language English Conakry Currency Leone (SLL) Makeni GDP (Current US$ bn) 2.5 GDP growth (annual %) 3.6 Freetown SIERRA LEONE

GDP per capita (Current US$) 433.9 Bo Kenema Total Debt (US$ bn) 0.7 Total Debt/GDP (%) 30.1 LIBERIA CPI (annual %) 12.7

Exports of Goods and services (% of GDP) 14.6 Monrovia Gross Official Reserves (in US$ bn) 0.2 Gross Official Reserves (in months of imports) 5.3 SLL/ per 1 USD 3,866.64

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» Sierra Leone’s financial system has experienced significant progress after hostilities ceased in 2001. The number of banks, insurance companies and other financial institutions has grown considerably. »» The fixed income market is still relatively shallow and dominated by central Government issuance. »» As is the case with other African countries, the investor base is composed almost exclusively of commercial banks. »» Bloomberg codes for market data: SLGB Corp. 138 Sierra Leone

Monetary Policy and Money Market

Monetary Policy Since the financial system is still fairly underdeveloped, The Central Bank, Bank of Sierra Leone, is responsible for there are a limited number of policy tools available. The defining monetary policy. The main policy goal is keeping Central Bank primarily uses Treasury bill auctions to inflation under control. implement policy.

Fixed Income Market Government Securities Investors The fixed income market is still at an early stage of devel- Commercial banks are the main buyers of Government opment. The only active issuer is the Government which bills. To date, there are 14 commercial banks operating issues Treasury bills on a regular basis through the Bank in the market. of Sierra Leone. In addition to commercial banks, the National Social Se- The offering of Treasury bills includes securities of 91, curity and Insurance Trust (pension institution), discount 182 and 364 days. Government bills are sold at weekly houses and insurance companies also buy Treasury bills. auctions conducted by the Central Bank. There is also a Retail Investors participate in the market via commercial 1-year long treasury bearer bond available. Ownership of banks. At present, foreign investors are not allowed in these bonds is verified by the actual bearing of the bond the market. Nonetheless, the Government is currently certificate, precluding the need to maintain a central reforming its capital markets’ regulation and it is expected registry of securities. that the market will open to foreign investors at some point in the near future. In an effort to improve debt management, the Govern- ment has decided to lengthen the maturity profile of Secondary Market debt instruments by gradually introducing longer-term Secondary market trading takes place over-the-counter instruments, i.e. 2-, 3and 5-years Treasury notes. through primary dealers and Repo/Reverse Repo opera- tions conducted by the Central Bank. The Intermediaries Instruments are sold via primary dealers. To be an author- ized dealer, institutions must have a depository account at the Central Bank.

Foreign Exchange Market

The Central Bank is in charge of managing the Leone (SLL) rate is a band of +/15% from the central rate of 2562.18 exchange rate. Although the currency is free-floating and Leones to 1 US dollar. determined by market forces, the stability of the exchange rate in the past and the high frequency of Central Bank Auctions are conducted every week and are open to vari- interventions result in a currency regime that is akin to a ous participants, such as commercial banks and importers managed float. In 2009, in the follow up to the financial of goods and services. crisis, the Leone depreciated by more than 20%. The graph below provides historical levels of the Leone In compliance with the West African Monetary Zone against the USD exchange rate mechanism, of which Sierra Leone is a member, the target for the official annual average mid Sierra Leone 139

SLL per Unit of USD (Year End)

4,000

3,500

3,000

2,500

2,000 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bloomberg

Regulation and Taxation

Regulation sible for the Sierra Leone Insurance Commission, an agency The Bank of Sierra Leone is the regulatory authority in of the Ministry of Finance and Economic Development. charge of banks, non-bank financial institutions and capital markets. Taxation There is a withholding tax of 15% applied to interest The insurance market is regulated and supervised by the earnings. Commissioner of Insurance. The Commissioner is respon-

Clearing and Settlement

The settlement of securities is processed manually through settlement day to meet the settlement obligations. These a book entry system and is completed on a same day basis. accounts are debited with the aggregate settlement price of all Treasury bills successfully bid for at the auction. Successful bidders must ensure that their current accounts at the Bank of Sierra Leone are sufficiently funded on

Regulatory Contacts Bank of Sierra Leone Siaka Stevens Street Freetown Sierra leone Tel: +232-22-226501 Fax:+232-22-224764 E-mail: [email protected] Website: www.bankofsierraleone-centralbank.org Somalia

2009 at a glance Asmera

ARABIAN PENINSULA Population (mn) 9.1 ERITREA Population growth (annual %) 2.3

Official language Somali DJIBOUTI GULF OF ADEN Djibouti Currency Somali Shilling (SOS) Berbera SOS / 1 USD (Year End) 1,484.03 Dire Dawa Hargeysa

Harer Source: AfDB, Bloomberg Addis Ababa Garoowe

Sovereign rating as at March 24, 2010 ETHIOPIA Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: AfDB, Bloomberg SOMALIA

Mogadishu

Marka

KENYA INDIAN OCEAN Summary Kismaayo

»» Following the downfall of the central Government in 1991, regional and internal conflict and humanitarian crises have plagued Somalia; public infrastructure was left in ruins, social Mombasa services and all state institutions that provided financial serv- ices collapsed, livelihoods were disrupted and a large number of people were displaced. »» There is no fixed income market in Somalia. 142 Somalia

Monetary Policy and Money Market

In the absence of formal commercial banking activities, all economic transactions, including very large investment transactions are settled through cash payments.

Macroeconomic Environment

In the past 18 years, the Somali economy has showed are agriculture (65%), industry (10%) and services (23%). great resilience given the political instability in the country. There is heavy dependence on external remittances for Real economic growth is estimated to have averaged 2.6% consumption and investment. for the last three years. The major contributing sectors

Overview of Financial Sector

Prior to the civil war, Somalia’s formal financial sector The Central Bank’s role includes acting as fiscal agent to comprised the following institutions: the Central Bank of the Treasury, supervising commercial banks and others Somalia, the Commercial and Savings Bank of Somalia, financial institutions, and the issuing of currency. the Somali Commercial Bank, the Cooperative Bank of Somalia, the Somali Development Bank and the State Remittance companies are the only financial services Insurance Company of Somalia. providers in the country for the majority of households and for the whole of the private sector. Currently, the financial system is composed of the Central Bank of Somalia, remittance companies, and microfinance institutions.

Inflation and Exchange Rates

The Somalia shilling has appreciated against the USD SOS per Unit of USD (Year End) during the last 5 years from SOS 3100/ 1 USD to SOS 3,500 1500/ 1 USD at the end 2009. 3,000 Alongside the Somali shilling, the US dollar is widely ac- cepted as a medium of large and high value transactions, 2,500

even for local trade exchange. 2,000

Inflation rates over the past 18 years have been stagger- 1,500 ingly high, due to the injection of foreign and local printed 1,000 currency (counterfeit) into the economy, higher fuel prices Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 and food insecurity. Source: Bloomberg The opposite graph illustrates the historical levels of the SOS against the USD. Somalia 143

Regulatory Contacts Central Bank of Somalia Head Office: Corso Somalia 55, P. O. Box 11 – Mogadishu, Somalia Tel: +2521-240162 Fax: +2521-241152 E-mail: [email protected] Website: www.somalbanca.org South Africa

ZIMBABWE MOZAMBIQUE 2009 at a glance Windhoek BOTSWANA Population (mn) 50.1 NAMIBIA Gaborone

Population growth (annual %) 0.9 Pretoria Johannesburg Maputo Mbabane Official language 11 including English SWAZILAND and Afrikaans

Maseru Currency Rand (ZAR) LESOTHO Durban GDP (Current US$ bn) 265.5 ATLANTIC OCEAN SOUTH AFRICA GDP growth (annual %) -2.2 Kaapstad INDIAN OCEAN GDP per capita (Current US$) 5,297.3 Port Elizabeth Total Debt (US$ bn) 75.1 Total Debt/GDP (%) 28.3 CPI (annual %) 7.2 Exports of Goods and services (% of GDP) 32.4 Gross Official Reserves (in US$ bn) 35.1 Gross Official Reserves (in months of imports) 5.3 ZAR / 1USD (Year end) 7.3980 Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch A BBB+ Moody’s A3 A3 S & P A+ BBB+

Source: Bloomberg

Summary

»» The most developed fixed income market in Africa with annual listed bond turnover above 15 times. »» Government securities yield curve extends out to 26 years with liquidity concentrated in two issues: the R157 (matures 2014/15/16) and the R186 (matures 2025/26/27). »» Increase in the issuance of domestic Government bonds (15.5% year-on-year in 2009) and corporate debt to cover the fiscal deficit and corporate capital investments. »» The relaxation of Foreign Exchange Control regulation has recently gained speed with a move to prudential regulations. »» In 2008, 27% of secondary market trading recorded by the exchange was by non-residents, down from a peak of 36% in 2006. »» A major challenge is capturing the offshore bond trades into the local market liquidity, pricing and trading system. »» Johannesburg Stock Exchange Ltd took over the Bond Exchange of South Africa Ltd in 2009. »» Retail savings bond programme has taken off successfully. »» Bloomberg codes for market data: BTMMSA 146 South Africa

Monetary Policy and Money Market

Monetary Policy Category 2 – comprised of some bonds in the All Bonds The South African Reserve Bank (SARB) conducts mon- Index (top 20 listed bonds by market capitalization and etary policy within an inflation targeting framework. The liquidity). These include, amongst others, some of De- current target is for CPI inflation to be within a range of velopement Bank of South Africa (DBSA), ESKOM and 3 to 6% conducted within a flexible inflation targeting TRANSNET Issues. framework. The SARB adopted the Inflation Targeting monetary policy framework in 2000. Monetary Policy Other monetary policy instruments are Cash Reserve Re- Committee (MPC) members meet every 2 months to review quirements, Reserve Bank Debentures, long-term reverse interest rates. In the aftermath of the financial crisis, the Repos, and foreign exchange swaps. MPC met monthly to enable faster adjustment of policy if necessary. The SARB creates a liquidity requirement in Money Market the money market which it then refinances at the Repo The Johannesburg Interbank Agreed Rate (JIBAR) is the rate determined by the MPC. The Central bank accepts money market rate that is used by the South African mar- two categories of Repo collateral: ket, and is calculated by the JSE. Ten banks are polled daily for their bid and offer rates on 3, 6 and 12 month rates. Category 1 Rand denominated T-bonds and T-bills, SARB The middle of the bid-offer range for each is taken and debentures, Land Bank bills and Government securities the two lowest and two highest of the ten are discarded. STRIPs. The remaining six are averaged to obtain the daily rate for each tenor.

Fixed Income Market

Government Securities Government securities yield curve as at 30 June The National Treasury (NT) issues Treasury bills with 2008, 2009 and 31 March 2010 tenors for 91, 182, 273 and 365 days. Auctions are usually Yield held weekly on Fridays, but T-bills may also be issued 15% by private placement or any other means chosen by the NT. Minimum bids are for ZAR 1,000,000, with multiples of ZAR 100,000 thereafter. Direct access is through the 12% Money Market Internet System (MMIS) to registered users.

Republic of South Africa (RSA) Government Bonds are 9% issued primarily to support the fiscal budget. Tenors with the largest outstanding sizes and liquidity are the R186 6% (approximately 14.5%), maturing annually in three equal 91 182 1 2 3 4 5 6 10 15 30 tranches from 2025 to 2027, and the R157 (approximately day day year years years years years years years years years Tenor 12.5%) also maturing annually in three equal tranches March 31, 2010 June 30, 2009 June 30, 2008 from 2014 to 2016. An issuance calendar is drawn up to facilitate coordination for public sector borrowing with Source: JSE Ltd state-sponsored and corporate issuers. This is exclusively a wholesale market with more sophisticated investors The RSA retail savings bonds are better suited to the retail and systems, hence only primary dealers may take part investors as a direct investment with a minimum invest- in primary auctions of RSA Government bonds. ment amount of ZAR 1,000 up to a limit of ZAR 5,000,000.

Non-Government Securities Municipal Bonds are issued by city councils for develop- ment projects with tenors typically longer than one year. The City of Johannesburg Municipality is the most active South Africa 147 issuer in this category, followed by the City of Cape Town Investors Metropolitan Municipality. Only if they qualify for the The banking sector is comprised of 5 locally controlled all-bond-index (ALBI), which they do not at the moment, banks, 7 foreign banks and 15 branches of foreign banks can they be used as collateral when trading Repos with registered in terms of the Banks Act. As of September the South African Reserve Bank. Municipal bond issues 2009, banks held ZAR 34 billion in short-term Govern- are not guaranteed by the central Government. Secondary ment stock and ZAR 72 billion in long-term Government market trading is very rare. stock. They also held ZAR 84 billion in Treasury bills.

Parastatal and corporate issuers are very active in the pri- The total assets of official pension and provident funds as mary market for both short-term and long-term debt, the at the second quarter of 2009 were ZAR 815 billion, while most noteworthy being ESKOM, Transnet and SANRAL. the total assets of private self-administered pensions and Other key issuers are the commercial banks, mortgage provident funds at the same date were ZAR 520 billion. houses, asset finance houses, as well as off-balance sheet SIVs like securitizations and conduits. Total assets of long-term insurers were ZAR 1,341billion as at the second quarter of 2009, while the assets of short- The Commercial paper (CP) primary market is very ac- term insurers were ZAR 85 billion. tive and is tapped by corporate issuers and state-owned companies. The definition of Commercial paper in South Total assets at book value of unit trusts as at the end of Africa has less to do with its tenor, and CP in South Africa the third quarter of 2009 were ZAR 717 billion. can have a maturity longer than one year. There are no restrictions on the participation of foreign Intermediaries investors in the debt markets and the market has been A Primary Dealer System was adopted in 1998 and the opened to foreign issuers under certain criteria. In Octo- members provide on-demand continuous and effective ber 2006, the Mauritius Commercial Bank made a debut two-way prices in Government securities. Trades are issue in RSA and raised ZAR 350 million on BESA (the largely transacted over-the-counter (voice brokered) and first regional or international inward listed bond in South are subject to counterparty risk. However, trades are Africa), which was facilitated by the further relaxation reported and matched on exchange in what was previ- of exchange controls in 2006. A couple of foreign issues ously a BESA offering. Trades settle on a T+3 basis even have taken place since; notably, in 2008, the first supra- though same day settlement is possible. national bond was listed in South Africa by the African Development Bank. There are eight primary dealers, among which are the largest South African banks: ABSA Bank, Investec Bank, Retail access to the fixed income market is mainly through Nedbank Ltd, Rand Merchant Bank (a division of Firstrand mutual funds managed by the numerous investment man- Bank) and Standard Corporate and Investment Bank. agement firms. Individuals may also buy bonds through Overall, there are 53 members in the bond market seg- brokers provides they transact in sizeable amounts. Bal- ment, 12 of which are banks. anced portfolios that include other bonds and asset classes are readily available as product offerings to retail and There are three inter-dealer brokers (IDBs), two of which institutional investors. are foreign-owned. The IDBs fulfil a vital intermediary role amongst the dealers and therefore contribute towards Holdings by category of investor as at June 30, liquidity. They also provide pre-trade price transparency 2009 (in percent) from their screens.The JSE’s Yield-X offers a central-order Central Bank, 1.50% book system for trading in bonds, which was developed as an alternative to the BESA offering. The Yield-X offering comprises a risk management system with settlement assurance via SAFCOM, which acts as a lender of last Public pension resort. Trades are thus margined and payment of the Non bank funds, 34.60% private sector margin occurs through the Clearing Member. To date, and Foreign this has not been the preferred trading method of the investors, market. However, the JSE’s Interest Rate Division, as part 47.20% of its strategic review, will evaluate all existing systems Commercial in order to offer the market the most desirable solution. Banks, 16.70%

Source: SARB 148 South Africa

A turnover of 2009 was ZAR 13.4 trillion, which followed Primary Market a record turnover of ZAR 19.2 trillion recorded on BESA The National Treasury issues vanilla bonds on a weekly in 2008, and ZAR 13.8 trillion in 2007. basis (every Tuesday) and CPI-linked bonds (every Friday) via auctions open to primary dealers. The Government Nearly two-thirds of trades that occur in the local market advises ahead of time which bonds and how much of are Repo trades. Non-members of the local exchange are these bonds will be offered to PDs via newswires, e.g. able to trade RSA bonds offshore OTC. Figures show Reuters and Bloomberg. that such trades have grown considerably over the past few years, although they have moderated substantially By mid-2009, the nominal value of all listed bonds meas- following the global financial crisis. In 2008, non-resident ured ZAR 855 billion and there were 1065 issues by 104 transactions accounted for 27% of the turnover recorded different issuers. Notwithstanding the dominance of by the exchange, down from a peak of 36% in 2006. Government debt, which comprised 53% of listed debt, there is a growing share of corporate debt. Average turnover velocity (turnover-to-listings ratio) dropped off sharply during the first half of 2009, from Corporate debt, including securitizations, accounts for just 24.3 to 16.5. over 30% of total issuance. Banks are the foremost issuers in the private sector. The share of issuance by state-owned Pre-trade, the JSE updates a screen on Reuters, I-Net enterprises, currently 12%, is set to increase over the next Bridge and Bloomberg which shows the market the pric- few years as these roll out aggressive investment plans. ing on offer from market participants. The screen is called Corporate issuance, on the other hand, has suffered a BESA bonds and only provides the pricing information moderate setback following the global financial crisis. for Government and parastatal bonds. Post-trade, the Municipal debt issuance is still very low, accounting for JSE disseminates end-of-day reports containing pricing less than 1% of total bonds listed. information. For instance, the JSE disseminates mark- to-market information on most instruments listed and Listed debt by category of issuers as at end June traded on the exchange and also trade-by-trade reports 2009 (in percent) that show all the trades that have taken place during the day and the relevant yield to maturity, without disclosing the identities of the trading parties.

Corporates, 19% Trend in Secondary Market Trading

ZAR Trillions Central 20 Securitization, Government, 12% 54% 15 SOE, Water authorities, 2% 12% 10

Municipal, 1% 5

Source: JSE Ltd 0 2003 2004 2005 2006 2007 2008 Price discovery and liquidity is greatly facilitated by the interdealer brokers. Source: JSE Ltd

Secondary Market While bonds are exchange traded, a significant amount The secondary market is a wholesale market dominated of swap and options trade takes place in the Over-the- by banks and fund management firms. It is liquid, al- Counter (OTC) market. though that liquidity is largely concentrated in a few Government issues, such as the R157 (2014/15/16) and Fixed Income Market Indices the R186 (2025/26/27). Approximately 85% of turnover is BEASSA total return indices – comprising the all bond accounted for by trades in Government paper. Corporate index (ALBI), the Government bond index (GOVI) and bonds do not trade much, with most investors in these the other bond index (OTHI). The ALBI is made up of the instruments adopting a buy-and-hold strategy. top 20 listed bonds, ranked by market capitalization and liquidity. The GOVI comprises those RSA bonds of the South Africa 149

ALBI in which the primary dealers are obliged to make a provide an independent measure of the performance of market. The OTHI comprises the remainder of the bonds a market sampling that encompasses most of the credit in the ALBI. All these indices measure the total return of sector. They can be used to compare the performance of representative bond portfolios, and provide benchmarks individual credit instruments that are neither issued nor for historical performance. guaranteed by central Government. As such, most of the constituent instruments are issued by private sector BESA money market index – an index against which organizations. money market portfolios can be benchmarked. The index provides a benchmark for money market investors that South African hedge fund index (by Clade & BESA) – replicates market behavior. an index created to represent all the open hedge funds in the South African market. It provides investors with Standard Bank credit indices – these comprise the credit a replicable benchmark showing returns from investing fixed, credit floating, and credit composite indices (a in a hedge fund index. weighted average index of the previous two). These indices

Foreign Exchange Market

The South African Rand (ZAR) is a freely floating unitary »» Non-residents are permitted to hold foreign cur- exchange rate since 1995. Restrictions on non-resident rency accounts. capital flows were fully liberalized in 1995 and restric- tions on residents are gradually being relaxed. Only fully Turnover in the Foreign Exchange licensed authorized dealers are permitted to deal in foreign Market exchange in South Africa. The average daily net turnover in millions of US dollar for the three years is as follows: SARB is in charge of exchange control and delegates some responsibility to authorized foreign exchange dealers. Year Average daily turnover (US$ Million) SARB has a stated policy of not intervening in the Forex 2006 10,871 market or using interest rates to influence the value of the 2007 12,555 currency, but may buy USD from time to time to shore 2008 12,778 up reserves when conditions permit. To June 2009 13,210 Source: SARB The main markets are spot, options, forwards and swaps Note: These figures include spot, forward and SWAP transactions in USD/ZAR. The market is also available for EUR/ZAR against the South African Rand. and GBP/ZAR.

Investor Exchange Control Regulations ZAR per Unit of USD (Year End) »» A resident needs SARB prior approval to borrow funds from a non-resident. 10 »» Firms with more than 75% non-resident owned or controlled have local borrowing restrictions linked to the company’s net worth and amount of non- 8 resident ownership. »» There are no restrictions on profit, interest, dividend and branch profit repatriation. However, director’s 6 fees, management fees and royalties require SARB approval. » 4 » Dividends and interest payments for non-residents Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 are exempt from taxes. Source: Bloomberg 150 South Africa

Derivatives Market »» J-ALBI – futures and options on the total return Interest rate swaps are available from 2 to 30 years. The other bond index, in near, middle and far maturities. pricing for forwards and futures on bonds is as per the existing Government bond tenors. Currency futures and »» J-ILBI – futures and options on the Barclays/BESA options on futures are also available in the market and Government inflation-linked bond index, in near, pricing is available in near, middle and far tenors for these. middle and far maturities.

Forward rate agreement – the market is liquid up to ZAR »» J-SWAPS (bond look alike swaps) – these are ex- 500 million, with bid/offer spread of 10 bps. Tenors go change traded and settled swaps of a NACS 6-month out to 2 years and average daily volume is ZAR 6 billion. interest rate on the fixed side against the 3-month JIBAR. The JSE provides the following interest rate derivative products for trading on the exchange: FX forwards – the market is liquid with an average trans- action size of USD 50 million. Spreads are 20 bps but »» J-FRAs – futures on FRAs (forward rate agreements) are volatile, with tenors of up to 10 years. Average daily quoted on the fixed rate of the underlying contracts; volume is USD 1 billion. all have a duration of 3 months. FX options – the market is less liquid. Transaction sizes »» Bond futures and forwards – these are offered on average USD 25 million and tenors go out to 5 years. all Government bonds listed: R157, R186, R201, R203, R204, R206, R208, and R209. Cross currency swap – the market is liquid up to USD 30 million and is available up to 10 years. Spreads aver- »» J-NOTES – standardized exchange traded futures age 15 bps. contracts on notional underlying swaps, in near (2 years), middle (5 years) and far (10 years) contracts.

»» J-GOVIS – futures and options on the total return Government bond index, in near, middle and far maturities.

Regulation and Taxation

Regulation South Africa has entered into double taxation agreements The Financial Services Board (FSB) is responsible for with most of its trading partners, including Austria, Bel- overseeing the regulation of the financial markets, such gium, Canada, Cyprus, Denmark, France, Germany, India, as the JSE and all financial institutions (insurers, brokers, Ireland, Israel, Italy, Japan, Korea, Malta, Mauritius, the etc). This, however, excludes banking institutions, which Netherlands, Norway, Singapore, Sweden, Switzerland, fall directly under the responsibility of the South African Taiwan, Thailand, the United Kingdom and the United Reserve Bank. States.

Taxation Stamp duty at 0.25% is payable on certain agreements, There is no withholding tax on bonds, but interest earned such as leases and mortgage bonds. on bonds is taxable as part of interest income to the investor. South Africa 151

Clearing and Settlement

Strate is the authorized Central Securities Depository for net basis. All these trades are regulated by the JSE and they the electronic settlement of all financial instruments in have to be reported to the JSE system within 30 minutes RSA. Strate is the custodian for debt instruments, of which of the trade being concluded. BESA, as the bond market virtually 100% are dematerialized (they are recorded in an was known previously, adopted the G30 standard of trade electronic securities register format). netting for the settlement of most types of transactions in 1990. It was implemented in 1995 and dramatically The settlement procedures depend on the instruments reduces settlement risk while also simplifying the process. being listed, i.e. short versus long-dated issues. Bond trades are settled on a T+3 rolling settlement. Settlement Off-exchange trades (OTS off-shore trade settlement) occur is guaranteed by settlement banks on settlement commit- OTC and are concluded between off-shore clients. They ment. The country’s settlement model is compliant with are then reported via Strate participants into the Strate the G30 recommendations on clearing and settlement. Bonds System for settlement and OTS bond settlements are thus regulated by Strate. This OTC market settles on On-exchange trades, which are trades reported by mem- a gross trade-by-trade basis. bers and clients to the JSE via its BTB system, settle on a

Regulatory Contacts

Johannesburg Stock Exchange The Financial Services Board, One Exchange Square, Gwen Lane, Sandown, 2196 Private Rigel Park, 446 Rigel Avenue South, Erasmusrand, Bag X991174, Sandton, 2146, Republic of South Africa Pretoria, RSA Tel: +27-11-520 7000 Tel: +27-12-4288000 Website: www.jse.co.za Fax: +27-12-4280221 E-mail: [email protected] South African Reserve Bank 370 Church Street, Pretoria 0002, P.O. Box 427, Pretoria, 0001, RSA Tel: +27-12-313-3911 Fax: +27-12-3133197 or 27-12-3133929 Website: www.reservebank.co.za Sudan

2009 at a glance EGYPT

Population (mn) 42.3 LIBYA

Bur- Sud- an- Population growth (annual %) 2.2 RED SEA Official language Arabic CHAD

Currency Sudanese Dinar Umm Durman- Al-Khartum- Bahrï ERITREA (SDD) Khartoum Asmera Wad Madani GDP (Current US$ bn) 50.9 Abéché SUDAN Al-Ubayyiø GDP growth (annual %) 3.8 GDP per capita (Current US$) 1,196.6 Total Debt (US$ bn) 36.7 Addis Abeba ETHIOPIA Total Debt/GDP (%) 72.6 CENTRAL AFRICAN REP. CPI (annual %) 10.2 Bangassou

Exports of Goods and services (% of GDP) 16.5 DEMOCRATIC REP. OF CONGO KENYA UGANDA Gross Official Reserves (in US$ bn) 0.7 Gross Official Reserves (in months of imports) 0.8 SDD / 1USD (Year end) 235.26

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» Financial contracts must comply with Islamic law or Sharia. »» The Government securities yield curve extends to 6 years with issuance points at 2, 3, 5 and 6 years. »» Securities are issued at the beginning of each quarter, and as required by the Ministry of Finance. »» Instruments are issued for liquidity management, fiscal policy, and the development of capital markets. »» Sukuk clearing and settlement is on a T+8 cycle. »» All trading of securities is conducted via the Sudan Financial Services Company (Ltd). 154 Sudan

Monetary Policy and Money Market

Monetary Policy access bridge financing in cases of seasonal financing gaps The Central Bank of Sudan’s (CBOS) policy aim is to or for the implementation of CBOS announced policies. maintain monetary and financial stability by achieving a one-digit inflation rate and by targeting a balanced growth The Murabaha financing margin is set at approximately in money supply. 9% for 2010 as an indicator per annum for the financing transactions in local and foreign currency. However, this The CBOS uses reserve requirement and open market rate does not apply to Murabaha operations in microfi- operations as policy instruments. The CBOS also has an nance. The Central Bank of Sudan issues a circular on investment window through which Islamic banks can how to calculate the Murabaha profits.

Fixed Income Market Government Securities The Government of Sudan introduced the economic Is- by the Ministry of Finance and National Economy (MFNE) lamic system in 1983 which prohibited the ‘riba’ (interest on behalf of the Government of Sudan. The marketing is or usury). This has influenced the way business transac- carried out by Sudan Financial Services Company (Ltd) and tions and investments are made. Financial contracts must the authorized agency companies. Access to GMCs is open comply with Islamic law or Sharia. to banks, local investors, foreign investors, companies, individuals and financial institutions, and settlement is Instruments done on T+1. Government Musharaka Certificates (GMCs) are similar to conventional Treasury bills and consist of securities based on Islamic Sharia Fundamentals. They are issued

Issuance of GMCs for the last three years Year Number of Maturity period Duration of profit Total number of Total amount in Average annual auctions in years distribution in certificates issued SDG millions rate of return months 2007 4 1 12 8,446,201 4,223.1 15.9% 2008 4 1 12 11,022,653 5,511.33 15.8% 2009 4 1 12 14,765,179 7,432 15.8% Source: Bank of Sudan

The auction day and frequency of auctions for GMCs is as follows: Day of first version Beginning of the subscription End of the subscription First of January First of February After 10 days from beginning First of April First of May After 10 days from beginning First of July First of August After 10 days from beginning First of October First of November After 10 days from beginning Source: Bank of Sudan

Government Investment Certificates (GICs) are similar to Co (Ltd). GICs auctions are held as and when required by conventional Government bonds and are based on Islamic the Ministry of Finance and National Economy. Access Sharia issued by MFNE on behalf of the Government of to GICs is open to banks, local and foreign investors, Sudan. Like the GMCs, they are managed and marketed companies, individuals and financial institutions, and in the primary market through Sudan Financial Services tenors are 2, 3, 5, and 6 years. Sudan 155

Issuance of GICs for the last three years Year Number of Maturity period in Duration of profit Total number of Total amount in Average annual auctions years distribution in certificates issued SDG millions rate of return months 2007 5 2-6 6 4,250,102 425 16% 2008 3 3 6 1,969,143 197 16% 2009 1 3 6 3,000,000 300 16% Source: Bank of Sudan

Objectives of Government Securities Non-Government Securities issuance in Sudan: The following instruments have been issued in the cor- »» managing liquidity at the macro economic level porate bond market: through open market operations within the ambit of Islamic Sharia; »» Bank of Khartoum Igarah Certificates; »» financing part of the deficit in the general Govern- »» Financial Investment Bank Certificates based on ment budget which is usually covered by borrowing Mudaraba and Musharaka Sukuk; from the Central Bank; »» Global International Company Musharaka Sukuk. »» development of a savings and investment culture that is Sharia compliant; Intermediaries »» introducing Islamic financial paper to help develop The Sudan Financial Services Company (Ltd.) represents the capital markets in Sudan and in the region. the primary market for Sukuk. The Sukuk must trade on the stock exchange and there are 40 brokerage firms for Central Bank Igarah Certificates (CICs) are additional the Sukuk in the market. Islamic certificates based on Islamic Sharia issued by the Central Bank of Sudan and managed in the primary Primary Market market by the Sudan Financial Services Co (Ltd). The first There is no minimum competitive bidding amount. When issues were to finance the construction of the Central demand exceeds the available supply for securities, the Bank and its branches. Subsequent auctions are held as Sudan Financial Services Company will make restrictions and when required for liquidity management. Access to to the amounts offered to individuals and banks. CICs is restricted to commercial banks only. Secondary Market Central Bank of Sudan Igarah certificates (CICs) Trading in the secondary market takes place over-the- Year Total Certificates Certificates Net balance counter and is dominated by transactions in GMCs. certificates sold purchased of held with certificates ebos and with banks banks 2007 243,871 867,000 682,600 184,400 2008 243,871 521,365 314,740 206,625 2009 243,871 25,137 5,000 20,137 Source: Bank of Sudan

Foreign Exchange Market

The foreign exchange policy is a managed flexible ex- as a main currency for external transactions to a basket change rate regime. The CBOS is considering broadening that is anchored to the Euro. the number of currencies with which to align the SDD. As part of this consideration, the CBOS is gradually im- plementing a plan of switching from using the US dollar 156 Sudan

The opposite graph illustrates the historical levels of the SDD per Unit of USD (Year End) SDD against the USD. 300

250

200 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bank of Sudan Regulation and Taxation

Regulation securities. There are no exemptions available to specific The financial sector is regulated by the Central Bank of investors and no difference in tax treatment between Sudan. resident and non-resident investors.

Taxation Interest income is subject to income tax at 15% for corpo- rate securities. There are no income taxes for Government

Clearing and Settlement The Sudan Financial Services Company (Ltd.) carries out the settlement cycle from trading and settlement and the clearing and settlement functions of Government transfer of securities is T+8. Sukuk trading. All Sukuk are held in electronic form and

Regulatory Contacts Bank of Sudan Khartoum Stock Exchange Gamaa Avenue, P. O. Box 313, Khartoum, Sudan P.O. Box 10835, Tel: + 249-18-7056000 Khartoum, Sudan Fax: +249-18-3787223 Albaraka Tower, E-mail: [email protected] 5th Floor, Khartoum, Sudan Website: www.bankofsudan.org Tel: +49-18-782450/782390 Fax: +249-18-782225 Website: www.khartoumstock.com Swaziland

2009 at a glance

Population (mn) 1.2 Barbeton MOZAM- SOUTH BIQUE Population growth (annual %) 1.5 AFRICA Official language Siswati/English Currency Lilangeni (SZL) Mbabane GDP (Current US$ bn) 2.8 Siteki Manzini GDP growth (annual %) 0.4 GDP per capita (Current US$) 2,401 SWAZILAND Total Debt (US$ bn) 0.5

Total Debt/GDP (%) 17.8 Piet Retief CPI (annual %) 8.8 Nhlangano SOUTH Exports of Goods and services (% of GDP) 82.4 AFRICA SOUTH AFRICA Gross Official Reserves (in US$ bn) 0.8 Gross Official Reserves (in months of imports) 4.9 SZL/ per 1 USD 7.3980

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» Government securities issues are shorter term 91-day Treasury bills. »» The fixed income market is relatively shallow. »» The investor base for new bond issues is primarily composed of banks. »» Reuters code for market data: SWAZ. 158 Swaziland

Monetary Policy and Money Market

Monetary Policy The Central Bank’s discount rate is the main operational Swaziland is a member of the CMA, a monetary union variable and the Bank of Swaziland uses open market which has the South African Rand as the common cur- operations as a monetary tool. The instruments applied rency. Although the Central Bank of Swaziland retains include 91-day Treasury Bills, as well as 28 and 56-day responsibility for monetary policy, its discount rate is Central Bank bills. closely aligned to South Africa’s rate. South Africa, there- fore, effectively formulates the monetary policy within the CMA region.

Fixed Income Market Government Securities Non-Government Securities The Central Bank, on behalf of the Government of Swa- The number of companies using bond issuance as a financ- ziland, issues 91-day Treasury bills on a weekly basis . ing tool is still limited. They include Standard Bank (STD), From April 2008 to March 2009, there were 52 auctions Newera Partners (NWR) and Inyatsi Construction (ICL). for a total notional amount of SZL 1.56 billion.1 The vast majority of Treasury bills sold were purchased and In 2008, the Swaziland Stock Exchange (SSX) approved held by commercial banks. No bills were traded in the the listing of a medium-term note (MTN) program for secondary market. Inyatsi Construction. The program size is SZL 70 mil- lion. To date, five note tranches have been issued (ICL01, The Government bills’ auction takes place every Wednes- ICL02 ICL03, ICL04 and ICL05) for approximately 67% of day, with results published the following day on the Cen- the full notional amount. Prior to that, a private equity tral Bank’s website or on the Reuters page SWAZ. Treasury company had undertaken an SZL 200 million MTN, which bills are offered on competitive and non-competitive bids, matured in early 2009. Subsequently, the SSX approved a for a minimum investment size of SZL 5,000 and SZL new MTN program of the same value in April 2009. One 10,000 respectively. Participation in the auction is open to tranche of approximately SZL 41 million has already been all, including individuals and non-residents. Bids can be listed under the new program. placed via primary dealers appointed by the authorities. In December 2009, the SSX approved a Note Issuance There are two Government bonds (SG004 and SG007) cur- Program (NIP) of SZL 80 million by a commercial bank, rently outstanding that will mature in 2010 (as illustrated Standard Bank Swaziland Limited (STDSZ01). So far, SZL in the table below). These bonds were issued in 2004 and 30 million has been raised through private placements. 2007. Since 2007, the Government has not undertaken any further debt financing via a bond issue.

Maturity profile of Government of Swaziland securities as at June 30, 2009 (in Emalangeni)

Millions 400

350

300

250

200

150

100

50

0 0-1 year 1-3 years Maturity Source: Central Bank of Swaziland

1 Source: Central Bank of Swaziland Annual Report 2008-2009 Swaziland 159

The table below sets out debt instruments issued in the Investors country. The Investor base is composed primarily of banks, as il- lustrated in the chart below. The main operators are the Issued Debt Instruments state-owned Swaziland Development & Savings Bank and Instrument Coupon Redemption Nominal three South African banks: First National Bank, Nedbank (%) Date Value (E) and Standard Bank. Government Bonds SG004 13.98 31-Aug-10 25,000,000 There also non-bank financial institutions such as insur- SG007 14 31-Aug-10 25,000,000 ance companies and pension funds investing in the fixed Corporate Bonds income market. The Swaziland Royal Insurance Corpora- STD001 9.73 15-Sep-15 35,000,000 tion (41% Government-owned) has practically a monopoly STD002 9.73 15-Sep-15 15,000,000 over the insurance sector. Recently, two South African insurance companies, the Old Mutual and Metropolitan, NWR02 11.5 15-Mar-10 10,000,000 have started tapping into the market. NWR05 13.85 28-Feb-09 5,000,000 NWR07 14.6 15-Mar-09 65,000,000 The Swaziland National Provident Fund and the Public NWR06 14.5 15-Oct-10 20,000,000 Service Pension Fund dominate the pension fund sector. NWR09 14.5 31-May-09 5,167,527 A few small private pension and provident funds also NWR10 15.5 27-Jun-11 24,806,395 operate in the market. NWR11 14 18-Dec-09 34,334,000 NWR12 15 23-Dec-10 20,000,000 Individual investors can participate in the market via NWR13 14.5 13-Jan-10 156,000 primary dealers (in the case of Treasury bills) or through NWR14 15.5 13-Jan-12 17,625,000 a broker. Non-residents are eligible to purchase Treasury ICL01 13.85 15-Sep-09 10,388,000 bills and other Government securities, however, their ICL02 12.5 15-Sep-09 5,055,000 investments are subject to exchange controls, as is the ICL03 13.75 15-Mar-15 16,000,000 case in South Africa. ICL04 9 19-Oct-12 5,000,000 Holdings by category of investor as at June 30, ICL05 9 1-Dec-12 10,350,000 2009 (in percent) STDSZ01 8.7 14-Dec-19 30,000,000 Other 3% Insurance companies 1% Source: Central Bank of Swaziland Annual Report 2008-09 Private Individuals 5%

Intermediaries The primary dealers for Treasury bills are Standard Bank of Swaziland, Nedbank (Swaziland Limited) and Swaziland Development and Savings Bank (Swazi bank). Commercial Government and Corporate bonds are transacted in the Banks 91% stock exchange (SSX).

The SSX authorizes brokers to be market makers. Such brokers receive mandates from clients and are not allowed to deal for their own accounts. Source: Central Bank of Swaziland

Foreign Exchange Market

The South African Rand (ZAR) is the legal tender in all All CMA member countries apply the same exchange countries of the Common Monetary Area. Nonetheless, control regulations: non-resident capital flows are gen- each country still retains the right to print its own cur- erally unrestricted; capital, profits and dividends can be rency, which may be used as legal tender inside its borders. repatriated; and exchange control limitations apply to Under the CMA agreement, the local currency Emalangeni resident capital flows. (SZL) is pegged at par to the South African Rand. 160 Swaziland

The opposite graph provides historical levels of the SZL SZL per Unit of USD (Year End)

against the USD. 10

8

6

4 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bloomberg

Regulation and Taxation

Regulation Committee which is constituted of market participants, The Central Bank of Swaziland has regulatory oversight of in the absence of the requisite legislation. the banking sector, with the Capital Market Development Unit designated with specific monitoring authority of the Taxation capital markets. These consist of a small bond market and There is no capital gains tax in the country. There is a the Swaziland Stock Exchange 10% tax on interest payments to both resident and non- resident holders of fixed income instruments. The Bond market is governed by the CMA member rules and SSX Listings Requirements sanctioned by the SSX

Clearing and Settlement

Settlement for bids (in relation to Treasury bills and CBS There is no central depository. Transactions are settled bills) is T+2. through transfer secretaries who are members of the stock exchange. Settlement of Government and corporate bonds is on a T+5 cycle.

Regulatory Contacts Central Bank of Swaziland P.O. Box 546 Swaziland Stock Exchange Mbabane, Swaziland. Tel: +268-408-2000 Mr. Sipho A. Dlamini Fax: +268-404-0038 P.O. Box 546 E-mail: [email protected] Mbabane, Swaziland Website: www.centralbank.org.sz Tel: +268-408-2500/2164 Fax: +268-404-9493 E-mail: [email protected] Website: www.ssx.org.sz

Tanzania

E I

Kampala A

I

L L

2009 at a glance A

A M

UGANDA M

O

O

S S Population (mn) 43.8 Nairobi Kigali Population growth (annual %) 2.9 RWANDA KENYA Mwanza Official language Kiswahili/English BURUNDI Bujumbura Mombasa Currency Tanzanian Shilling TANZANIA (TZS) Tanga Tabora GDP (Current US$ bn) 19.6 Lake Tanganyika Dodoma Zanzibar Dar Es Salaam GDP growth (annual %) 5.1 DEMOCRATIC REP. OF CONGO GDP per capita (Current US$) 449.0

Mbeya Ocean Indian Total Debt (US$ bn) 7.0 ZAMBIA Total Debt/GDP (%) 35.7 Lake Nyasa Mtwara CPI (annual %) 9.4 Mzuzu MOZAMBIQUE Exports of Goods and services (% of GDP) 20.9 MALAWI Gross Official Reserves (in US$ bn) 2.9 Gross Official Reserves (in months of imports) 4.6 TZS/ per 1 USD 1,339.50

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» Government securities yield curve has tenors up to 10 years. »» No declared official benchmark for any bill or bond, but all tenors up to 5 years are liquid and the 364-day Treas- ury bill is the most traded on the secondary market. Available maturities are: 35-, 91-, 182-and 364-days, and 2-, 5-, 7and 10-years. »» Auctions of Treasury bills and bonds are announced one week before issuance in local papers and on the Bank of Tanzania (BOT) website. There is no official auction calendar with tenors and amounts. Treasury bill auctions are held fortnightly, whilst Treasury bond auctions take place once a month. »» Foreign investors are restricted from investing in the local bond market. 162 Tanzania

Monetary Policy and Money Market

Monetary Policy to the Finance Minister and to Parliament. Monetary The Bank of Tanzania (BOT) conducts monetary policy policy on a day-to-day basis is managed by the Liquidity by targeting monetary aggregates, with the aim of achiev- Management Committee while the Monetary Policy Com- ing price stability. The policy instruments used are open mittee deals with the more long-term monthly perspective. market operations, refinancing policy, cash reserve re- quirements and foreign exchange intervention. Open Money Market market operations are the priority monetary policy tool The money market comprises Treasury bills, repos, the used by the BOT. interbank cash market and the interbank foreign exchange market. The Central Bank holds consultations with the Govern- ment on policy and reports twice a year on developments

Fixed Income Market

Government Securities Government securities yield curve as at 30 June Treasury bills are issued by the Bank of Tanzania on behalf 2007, 2008 and 2009 of the Government of Tanzania for deficit financing and Yield liquidity management. Tenors issued are 35-, 91-, 182-, 20% and 364-day bills. Auctions are held every two weeks and all tenors are offered at each auction. Typical issue 15% sizes range from TZS 65 to 130 billion. Minimum bid size is TZS 500,000 when bidding through primary dealers 10% and TZS 5,000,000 for direct bidders with multiples of

TZS 10,000. Settlement takes place on a T+1 basis. The 5% outstanding stock of Treasury bills as of 30 September 2009 was TZS 299 billion. 0% 35 91 182 364 2 5 7 10 days days days days years years years years Tanzania Government Bonds are currently issued primarily 30-Jun-09 30-Jun-08 30-Jun-07 Tenor as fiscal policy instruments, but also serve to lengthen the maturity profile of Government debt and the yield curve Source: Bank of Tanzania (that is illustrated in the graph below), and increase the number of tradable instruments in the market. Tenors Maturity profile for Government securities as at issued are 2-, 5-, 7and 10-years. Auctions are held once a end Feb 2010 month under a multiple price system and are announced Billions of TZS a week before the auction day. Issue sizes range from TZS 1500 20 to 50 billion. The minimum bid size is TZS 1,000,000 1200 when bidding through primary dealers and TZS 5,000,000

for direct bidders with multiples of TZS 100,000. Treas- 900 ury bonds are offered to Tanzanian residents only. The outstanding stock of Treasury bonds as of 30 September 600 2009 was TZS 1.85 trillion. 300

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Year T-bonds T-bills

Source: Data from Bank of Tanzania Tanzania 163

Non-Government Securities Parastatal and corporate issuers are not very active and The banking sector holdings account for 30.3%/TZS 733 have had seven issues since 2003. Six of the issuers have billion of total domestic debt as of 30 September 2009. been financial institutions, namely the East African De- velopment Bank (bond worth TZS 15 billion), PTA Bank The pension fund sector has six pension funds holding (TZS 15 billion), Barclays Bank Tanzania Ltd (TZS 10 22.9%/ TZS 554 billion of total domestic Government debt billion), Standard Chartered Bank Tanzania Ltd (TZS 8 as of 30 September 2009. billion), BIDCO Oil, and Soap Co. Ltd. The maturities so far have extended to seven years. There were 18 insurance companies registered in Tanza- nia. According to the BOT quarterly bulletin, insurance Intermediaries companies held 1.7%/TZS 41 billion of total Government Commercial banks are registered as primary dealers. They debt stock as of 30 September 2009. have no obligation to provide two-way quotes and also do not have exclusive access to auctions in the primary Foreign investors are not allowed to participate in both market. There are some brokers within the East African Treasury bill and Treasury bond auctions, but this is region that seek levels on Treasury bills and bonds on the scheduled to change by 31 December 2012 according to Money Market. It is not known with certainty whether a signed East Africa Community agreement. Foreigners any transactions occur through their intermediation. can invest in corporate bonds traded on the Dar es Salaam Bank dealers often call each other directly for Treasury stock exchange. bills and bonds. Retail investors access the market mainly through col- Investors lective investment schemes, of which there are three The chart below illustrates the holdings of Government currently. Retail investors can also submit bids through securities. primary dealers and maintain subaccounts under primary dealers. Holdings by category of investor as at June 30, 2009 (in percent) Secondary Market Non-bank Financial Institutions, 2.00% In principle, Treasury bills can be traded over-the-counter, Other official entities, 1.00% Individuals, 0.60% but Treasury bonds must be traded on the exchange. However, the practice seems to be OTC trading for bonds as well, which are then reported to brokers for registration on the stock exchange.

Commercial Banks, Central Bank, 30.30% 41.40% The day-count convention is actual/365 and the daily turnover is estimated at TZS 1.5 billion.

Pension funds, The 2-year bond is the most actively traded tenor. 22.90% Insurance companies, 1.70%

Source: Bank of Tanzania

Foreign Exchange Market

The Tanzania shilling (TZS) has a managed float unitary USD; the forward market is fairly short-term, but is de- exchange rate. Tanzania does not have a fully liberalized veloping. There is also an available market for TZS/EUR capital account and therefore has restrictions to capital and TZS/GBP. flows. The interbank foreign exchange market is com- prised of 30 banks, 18 of which transact through Reu- ters dealing with two-way quotes applicable up to USD 100,000. The main market is the spot market for TZS/ 164 Tanzania

The opposite graph provides historical levels of the TZS TZS per Unit of USD (Year End) against the USD. 1400

1200

1000

800 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: Bloomberg

Derivatives Market

Several OTC transactions have taken place in the market. Short-term forward currency transactions and interest rate swaps can be structured by banks for their clients.

Regulation and Taxation

Regulation created in June 2009 and will become fully operational Capital markets are regulated by the Capital Markets and after the recruitment of board members. Securities Authority (CMSA) created in 1996. The role of the CMSA is to regulate the issues and issuers in the The insurance sector is regulated by the Tanzania Insur- capital market as well as develop the market. Whilst the ance Regulatory Authority (TIRA) created in 2009. issuance of Treasury bills and bonds is under the supervi- sion of the Bank of Tanzania, guidelines for the issuance Taxation of corporate bonds are set and enforced by the Capital Government securities attract withholding tax on inter- Markets & Securities Authority (CMSA) in consultation est income at a rate of 10%. Interest income earned from with the BOT. investment in 2-year Treasury bonds is subject to with- holding tax, while income on investment in 5-, 7 and BOT is responsible for the licensing, supervision and 10-year bonds is exempt from withholding tax. Likewise, regulation of the banking system. corporate bonds with maturities extending to three years and above are exempt from withholding tax on interest The Social Security Regulatory Authority (SSRA), the income. All bonds listed on the DSE are exempt from regulatory body for the pension industry, was officially capital gains tax.

Clearing and Settlement

The BOT introduced an electronic book entry system in funds is accomplished. The market also operates on a 1999, with settlement of T+1 for Government securities Delivery versus Payment and Payment versus Payment in the primary market. In 2004, the BOT also launched the basis. The Bank of Tanzania Electronic Clearing House Real Time Gross Settlement system that greatly improved facilitates the exchange of both physical paper and elec- the efficiency with which transfer of large amounts of tronically registered securities. Tanzania 165

Regulatory Contacts Bank of Tanzania Dar-es-Salaam Stock Exchange P.O. Box 2939, Dar-es-Salaam, Tanzania P.O. Box 70081, Dar-es-Salaam, Tanzania 10 Mirambo Street, Dar-es-Salaam, Tanzania Twiga Building, 4th Floor, Samora Avenue, Dar-es-Salaam, Tel: +255-22-2110945-7, 2110951-2 Tanzania Fax: +255-22-2113325 Tel: +255-21-2135779, 2123983, 2128522 E-mail: [email protected] Fax: +255-21-2133849 Website: www.bot-tz.org E-mail: [email protected] Website: www.darstockexchange.com Capital Market and Securities Authority P.O. Box 75713, Dar-es-Salaam, Tanzania Tel: +255-21-2113903, 2114959-61 Fax: +255-21-2113846 E-mail: [email protected]

Tunisia

2009 at a glance ITALY Population (mn) 10.3 Bizerte

Tunis Population growth (%) 1.0% Qacentina Stif Official language Arabic Sousse Malta Currency Tunisian Dinar (TND) Sfax MEDITERRANEAN GDP (Current US$ bn) 41.3 SEA Gabès GDP growth (annual %) 3.1 GDP per capita (US$) 4,024.2 TUNISIA Tripoli External Debt (US$ bn) 20.9 ALGERIA External Debt/GDP (%) 50.6 LIBYA CPI (%) 3.2 Exports of Goods and services (% of GDP) 52.6 Gross Official Reserves (in US$ Bn) 10.6 Gross Official Reserves (in months of imports) 6.0 TND/ 1 USD (year end) 1.3237

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch A- BBB Moody’s Baa2 Baa2 S & P A- BBB

Source: Bloomberg

Summary

»» Government yield curve has tenors up to 15 years with five benchmark points along the curve. »» Growing and diversified investor base with marginal presence of foreign investors. »» Weekly and Monthly Auctions of Treasury bills and bonds respectively. »» Average size of transactions on the secondary market was TND 0.38 million in 2008. »» In 2007, the foreign investors’ participation in a single public or private debt issue was increased up to 20% of the half-year projected outstanding amount. »» Bloomberg and Reuters codes for market data: • Reuters: BCTX • Bloomberg: TNWE 168 Tunisia

Monetary Policy and Money Market

Monetary Policy The Monetary Policy Committee (MPC) meets weekly. The Central Bank of Tunisia, Banque Centrale de Tunisie Unless there is an extraordinary event that requires early (BCT), formulates and implements monetary policy. The intervention, the BCT’s Board meets on a monthly basis. BCT conducts open market and Repo operations, using the monetary base as an operating target and inflation as Money Market an intermediate operating target. In addition to monetary Repo, Certificate of Deposits, and Commercial Paper are aggregates and credit monitoring, monetary policy is the main components of the Tunisian money market. All based on diversified indicators closely linked to inflation, money market instruments are dematerialized. notably import prices and the output gap. The money market benchmark rate is the “Taux Moyen In the medium term, the Central Bank plans to switch to Mensuel du Marché monetaire” (TMM), which is reset an inflation-targeting policy. on a monthly basis.

Fixed Income Market

Government Securities Auction details The fixed income market comprises short-term Treas- T-bills T-bonds ury bills (Bons du Trésor à Court Terme BTCT), bonds Auction frequency Weekly, on Thurs- Monthly, the first equivalent to Treasury bonds (Bons du Tresor Assimila- days Tuesday bles – BTA), and corporate obligations. These securities Auction method Dutch Dutch are fully dematerialized and have tenors ranging from 13 Settlement cycle T+7 T+7 weeks to 15 years for public securities and from 5 to 25 Access Through 13 Primary Dealers years for corporate obligations. Minimum bid n/a amount The Government of Tunisia, through its issuing agent Foreign investors Up to 20% of each half-year previsional the Treasury, regularly issues debt1. Short-term Treasury outstanding issue bills (BTCT) are issued through weekly (but on an ir- regular basis) auctions for 13-, 26 and 52-weeks tenors. As of 30 September 2009, the total outstanding debt is BTCT are issued through bids of TND 1,000 each and TND 7.035 billion, of which 82% is Government obliga- reimbursable at maturity. Interest is calculated and paid tions and the remaining corporate debt. More than 63% at the issuance date. of Government debt matures within five years, 32% be- tween 5 and 10 years, and 5% above 10 years. Interest is Bonds equivalent to Treasury bonds (Bons du Trésor payable annually, with bullet repayment of the principal. Assimilables – BTA and BTZc) are issued on a monthly 93% of outstanding Government securities are fixed rate basis for tenors between 2 and 15 years. Both are issued instruments and the remaining securities zero-coupon through bids and are reimbursable at maturity. obligations.

The main characteristics of Government debt issuance The following graph describes the change in the Tuni- are summarized in the table below: sian Government yield curves over the last three years, highlighting the impact of the financial crisis in 2009 on the one hand, and the decrease in the BCT’s key policy rate in early 2009 on the other hand, resulting in a drop of yields across all maturities in July 2009. 1 The Treasury ceased issuing transferable T-bills (which were instruments of the money market), as well as negotiable T-bonds. Tunisia 169

Government securities yield curve as at 30 June Commercial banks and mutual funds are major investors, 2007, 2008 and 2009 accounting for more than 60% of holdings of Treasury

8% bills and bonds as of 31 July 2009. The participation of foreign investors and the BCT has been marginal over the last two years, as seen in the chart below. 7%

Holdings by category of investor as at June 30, 6% 2009 (in percent)

5%

4% 91-d 182-d 1-y 2-y 3-y 5-y 10-y 15-y Mutual Funds, 28.73% 30-Jun-09 30-Jun-08 30-Jun-07 CB for their Clients, 37.66% Source: Banque Centrale de Tunisie (BCT) Central Bank (BCT), 0.43% Commercial Banks, Foreign Investors, 0.19% Non-Government Securities 32.99% Most major Tunisian corporations issue debt throughout the year, depending on the liquidity available in the capital markets. Municipalities are allowed to issue debt in the capital markets, however, to date they have not issued Source : Banque Centrale de Tunisie (BCT) any debt. Financial institutions are the most active among non-Government issuers. Primary Market The Tunisian Government (via the Treasury), major cor- Intermediaries porations and financial institutions regularly issue debt Local and foreign investors have access to the primary in the capital market in order to match their financing and secondary debt market through primary dealers as- requirements. signed by the Ministry of Finance. Primary dealers must subscribe at least 4% of the annual Treasury bonds and Secondary Market 3% of the annual Treasury bills issuances. The fixed income secondary market is illiquid, despite a slight increase in the trading volume in recent years: 64 The BCT participates in the secondary market through transactions executed in 2004, 508 transactions in 2008 open market transactions and Repo operations that influ- and 240 transactions in the first six months of 2009. ence the interbank benchmark rate. On average, less than two transactions are traded daily Investors in the secondary market, for a turnaround of TND 0.380 The Tunisian debt market is relatively active with a diversi- million. Debt instruments are traded in the Bourse des fied investor base, namely commercial banks, mutual and Valeurs Mobilières de Tunisie (BVMT) and prices are pension funds, the BCT and foreign investors. published on the website of the BVMT.

Foreign Exchange Market

The Tunisian Dinar follows a managed floating exchange Subject to a valid Certificate of Capital Importation (CCI), rate regime and is officially convertible for all current ac- interest and capital gains realized by foreign investors can count transactions. The TND is pegged to a basket of the be fully repatriated. However, the transfer of foreign cur- currencies of Tunisia’s main trading partners. The Euro has rency by residents is capped, depending on the purpose a preponderant share of the basket, as most of Tunisia’s of the transaction. trading partners are Euro zone countries. The Tunisian Dinar (TND) has depreciated against all TND rates are freely set through interbank transactions major currencies in the past five years. by commercial banks.

170 Tunisia

The opposite graph provides historical levels of the TND TND per Unit of USD (Year End)

against the USD. 1.5

1.2

0.9 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009

Source: BCT

Derivatives Market

The derivatives market comprises mainly foreign exchange executed over-the-counter (OTC). Banks can offer their forwards, including cross currency forwards, and more clients (which may include other banks) cross currency recently, forward rate agreements (FRAs) and interest forwards up to 12 months and vanilla foreign exchange rate swaps and options. The derivatives market is not options up to 3 years. yet organized in a central exchange and transactions are

Regulation and Taxation

Regulation companies. However, for individuals, interest incomes The Financial Market Council (Conseil du Marché Finan- are deductible with a cap at TND 1,500. cier CMF) is responsible for regulating, monitoring and supervising capital markets. The Council oversees and Interest income and capital gains by non-residents are controls the stock market, primary dealers, mutual funds taxable at 20%. and the clearing and settlement house.

Taxation Interest income is taxed at 20%. Capital gains on bond sales are included in taxable income for individuals and

Clearing and Settlement ized and settled using the Delivery versus Payment STICODEVAM, the “Sociéte Tunisienne Interprofes- (DVP) method. sionnelle pour la Compensation et le Dépôt de Valeurs Mobilières” is the clearing and settlement house, as well as the central depository for securities. In addition Securities are settled on T+7, on a gross basis by type to the Central Bank and the Treasury, its sharehold- (stock, T-bonds and T-bills) at business closing date. The ers include various market intervenants. Securities are day-count convention is maturity-based, which is Act/360 identified by an ISIN Code and are entirely dematerial- for maturities lower than one year and Act/365 above.

Tunisia 171

Regulatory Contacts Banque Centrale de Tunisie Conseil du Marché Financier B.P 777-1080, Tunis, Tunisia 8,Rue du Mexique 1002, Tunis, Tunisia 25, rue Hédi Nouira, Tunis, Tunisia Cité Montplaisir, Tour Babel Escalier E, 1073 Tunis, Tunisia Tel: +216-71-254000/340588 Tel: 216-71-844500 Fax:+216-71-340615 Fax: 216-71-848001/841809 E-mail: [email protected] E-mail : [email protected] Uganda

2009 at a glance SUDAN Population (mn) 32.7 Population growth (annual %) 3.3 Official language English UGANDA Currency Uganda Shilling (UGX) DEMO. REP. OF CONGO

GDP (Current US$ bn) 15.6 Mbale KENYA GDP growth (annual %) 6.5 Jinja Kampala GDP per capita (Current US$) 478.5 Masaka Total Debt (US$ bn) 2.4 Mbarara Lake Victoria Total Debt/GDP (%) 15.5

RWANDA CPI (annual %) 11.5 Kigali

Exports of Goods and services (% of GDP) 15. Mwanza BURUNDI Gross Official Reserves (in US$ bn) 2.4 Gross Official Reserves (in months of imports) 5.5 UGX/per 1 USD 1900.00

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Fitch B B Moody’s Not rated Not rated S & P B+ B+

Source: Bloomberg

Summary

»» Government securities yield curve has tenors up to to 10 years. »» Liquidity is concentrated in the two- and three-year section of the curve. »» The Central Bank aims to issue more long-term securities targeting a Treasury bills to bonds ratio of 40:60 from 48:52 in June 2009. »» There is a bi-monthly issuance of Treasury bills of all maturities every 14 days and one Government bond auction is held every 28 days. »» Settlement for bonds in the primary market is T+1 and T+0 in the secondary market. »» An increase of 19% in the secondary market trading in Government bonds from FY 2007/8 to 2008/9. »» There is a need for a more diversified investor base. »» The Financial Markets Development Plan (FMDP) was launched in September 2008 under the auspices of the Monetary Affairs Committee (MAC) of the East African Community as a common financial markets development approach in the region. 174 Uganda

Monetary Policy and Money Market Monetary Policy Money Market The Bank of Uganda (BOU) conducts monetary policy The most frequently used money market pricing reference within a monetary aggregate targeting framework. Con- rate is the 182-day Treasury bill, typically priced from the sequently, there is no explicit short-term interest rate primary auctions. The market is developing an interbank target. The policy instruments are open market operations, money market rate referred to as KIBOR (Kampala Inter- discount window, cash reserve requirements and foreign bank Offer Rate) that averages the overnight interbank exchange sales. Open market operations (OMO) are the rates in the market. Efforts are being made to extend it primary monetary policy tool used by the Central Bank to a weekly and monthly reference. and are executed exclusively with the primary dealers of Government securities. Government securities with maturities of one year or less are used as collateral for Repos OMO..

Fixed Income Market

Government Securities Government securities yield curve as at 30 June Government securities are issued by the Bank of Uganda 2007, 2008 and 2009 on behalf of the Government of Uganda as monetary Yields policy instruments. Treasury bills are 91-, 182-, and 365- 20% day bills. Auctions are held once every two weeks and all tenors are often offered at each auction. Access is through the primary dealer system, though bids may be 15% sealed by the investor and submitted through primary dealers. Minimum bids are UGX 100,000,with multiples of UGX 100, 000 thereafter. The outstanding stock as of 10% 31 December 2008 was UGX 1.368 trillion.

5% Uganda Government Bonds are issued for 2, 3, 5 and 10 91 182 364 2 years 3 years 5 years 10 years years. The 2 and 3-year tenors are the most issued and days days days Tenor have the highest liquidity. There is a pre-determined is- 30-Jun-09 30-Jun-08 30-Jun-07 suance schedule in place: Treasury bond auctions are held Source: Bank of Uganda once every 28 days, with only one tenor offered. All bids in the primary market are submitted through primary Non-Government Securities dealers, though investors can submit sealed bids through Parastatal and corporate issuers are becoming increas- primary dealers. The graph below illustrates the trend in ingly active in the primary bond market. The majority of the Government securities yield curve. corporate issuers thus far have been financial institutions, issuing amortizing and bullet bonds with both fixed and floating rate options. Outstanding issuances as at 28 February 2010 amount to UGX 143 billion, all from five financial sector issuers.

Intermediaries A Primary Dealer (PD) System was adopted in 2003 with the appointment of five commercial banks. A sixth PD was appointed in 2008. PDs participate in open market operations (auctions, repurchase agreements, reverse repurchase agreements, and outright sales and purchase of Government securities) and secondary market transac- Uganda 175 tions. Reforms are ongoing to strengthen the PD system (these holdings are included in the commercial bank’s by including non-bank PDs. holdings in the chart)

Government bonds are also listed on the Uganda Securi- Retail investors can invest directly through primary dealers ties Exchange. However, almost all trading is done in the and hold sub-accounts at the central depository, or invest over-the-counter market amongst dealers. indirectly through the products of the growing number of mutual funds in the market. Investors The bond market is dominated by commercial banks Primary Market with 69.3% and the national pension fund with 13.4% of Primary issues are done through a multiple price auction outstanding holdings, as illustrated in the chart below. system, with bids accepted on both a competitive and There is growing demand for bonds from fund managers non competitive basis. As of June 2009, total outstanding as assets under management continue to grow. It should Treasury bill and bond issues amounted to UGX 2,656 be noted that the holdings by commercial banks include billion (USD 1.284 billion) from 85 issues, while for June holdings by foreign investors. 2008, the total outstanding Treasury bill and bond issues amounted to UGX 3,003 billion (USD 1.85 billion) from Holdings by category of investors as at June 30, 95 issues. There has been increased issuance by corporate 2009 (in percent) entities specifically from the banking sector in the recent Individuals 1% Central Bank 5% past, but the market remains predominantly a Govern- ment securities market.

Secondary Market Pension Funds, In the secondary market, all primary dealers provide 15% Insurance Companies, 2% on-demand continuous and effective two-way prices for on-the-run Government instruments. Trades are largely Commercial Banks, transacted over-the-counter (voice brokered) and are re- 77% ported to the Bank of Uganda for settlement and transfer of securities. Treasury bills are actively traded with a bid/offer spread of 25 to 50 bps. The yield curve of up to 3-years is liquid, but 5-year and 10-year bonds are scarcely traded. To improve liquidity in bonds, the Central Bank Source: Bank of Uganda continues to reopen issues in order to create larger and more liquid bonds along the curve. There are 22 commercial banks, 4 credit institutions and 3 microfinance deposit-taking institutions. Three foreign Almost all of the turnover is accounted for by trades in owned banks in Uganda account for approximately 75% of Government paper. Corporate bonds do not trade much, Uganda’s banking sector assets, with Stanbic Bank Uganda, with most investors in these instruments adopting a a foreign bank from South Africa, being the largest. buy-and-hold strategy. The limited sizes and liquidity in corporate bonds restrict commercial bank interest in The pension fund industry is still dominated by the corporate paper. National Social Security Fund and holds a significant proportion of Government bonds particularly at the long A turnover of UGX 1.8 trillion was recorded in 2008 in the end of the yield curve. Government bond market, which represents a turnover ratio of 0.7, a significant improvement on the ratio of 0.47 The insurance industry is comprised of 21 firms. The recorded for 2007. In 2008, the average volume traded size of the industry by assets was UGX 1.91 billion by per day was UGX 6.8 billion 36% higher than the previous the end of 2008. year. The average size of a trade was UGX 2 billion in 2008.

There are 5 licensed fund management firms in Uganda Foreign investors participate in the local market through as of 31 December 2009. the commercial banks, however the global financial crisis led to a withdrawal of investment by foreign investors. Foreign investors are not restricted from participating in the debt markets. Holdings by foreign investors of Government and corporate securities are listed on the Government securities at end June 2009 was UGX 100 Uganda Securities Exchange (USE), the country’s principal billion, representing 3.77% of the total outstanding debt. stock exchange. It is still very nascent and as of January 176 Uganda

2010, it had 12 listed local and East African companies. Trend in Secondary market trading annual Trading takes place on Mondays, Tuesdays and Thursdays turnover in Government securities only and by use of the open outcry method. An automated Amount in Uganda Shillings (Trillions) trading platform is being considered. 2,0

1,5

1,0

0,5

0,0 2003 2004 2005 2006 2007 2008 Year

Source: Bank of Uganda

Foreign Exchange Market

The Uganda Shilling is a free-floating unitary currency The graph below provides historical levels of the UGX since 1993. The Central Bank licenses foreign exchange against the USD. dealers who have reporting obligations to the Central Bank. There are no restrictions on the capital, interest UGX per Unit of USD (Year End)

and dividend flows of both residents and non-residents 2,000 in and out of Uganda; the country’s capital account is fully liberalized. The main market is the spot market for UGX/ USD and the forward market is short-term in tenor, but is gradually extending to longer maturities. The market 1,750 is also available with considerable depth for UGX/EUR and UGX/GBP. The interbank foreign exchange market is active and dealers post live quotes on a Reuters system with quotes good for USD 100,000. The BOU may buy or 1,500 sell USD from time to time to control volatility, but does Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 not target a rate.

Derivatives Market

The derivatives market in Uganda is still underdeveloped, Volumes in the derivatives market are less than 1% of the with the main instruments being swaps and forwards. total forex turnover.

Regulation and Taxation

Regulation Capital Markets are regulated by the Capital Markets The BOU is responsible for the licensing, supervision and Authority (CMA) of Uganda. The Uganda Securities Ex- regulation of the banking system. change is licensed by the Capital Markets Authority and is the centre for equity and corporate debt market activity. The CMA also licenses broker/dealers, investment advi- Uganda 177 sors and fund managers in the market and approves all seek to increase crossborder listings, harmonize legal corporate bond issues. and regulatory frameworks and develop capital markets in the region. The BOU issues Uganda Government securities on behalf of the Government. The Bank of Uganda is authorized to Taxation hold securities in electronic form on the authorized CSD Withholding tax on Government securities is currently for the electronic settlement of all financial instruments at 15% on both coupon interest and discount interest at in Uganda Government securities. The insurance sector is redemption. regulated by the Uganda Insurance Commission. There is no capital gains tax on the sale of Government The three regulatory authorities of Kenya, Uganda and and corporate securities. Uganda has entered into tax Tanzania signed a Memorandum of Understanding in treaties with Denmark, Norway, South Africa, the United 1997 and created an umbrella body known as the East Kingdom and Zambia. There is no distinction between African Securities Regulatory Authorities (EASRA). They the taxes levied on residents and non-residents.

Clearing and Settlement

The market has an electronic book entry system, with Transacting parties submit filled forms to the BOU which settlement of T+1 for Government securities, T+2 for then transfers the securities. The Uganda Securities Ex- foreign currency trades, and T+0 for Repurchase Agree- change is setting up a Securities Central Depository system ments and interbank trades. The central depository for which will facilitate the trading of corporate bonds. Government securities is housed at and managed by the Central Bank.

Regulatory Contacts Bank of Uganda P.O. Box 7120, Kampala, Uganda Uganda Securities Exchange Ltd. 37/43 Kampala Road, Kampala, Uganda P.O. Box 23552, Kampala, Uganda Tel: +256-41-258441-6/258060-9/259090 Plot 1, Pilkington Road, Workers’ House 2nd Floor, Fax: +256-41-230878/233818 Northern Wing, Kampala, Uganda E-mail: [email protected] Tel: +256-41-343297/342818 Website: www.bou.or.ug Fax: +256-41-342841 E-mail: [email protected] Capital Markets Authority Website: www.use.or.ug P.O. Box 24565 Kampala, Uganda 8th Floor, Jubilee Insurance Centre, 14 Parliament Avenue, Kampala, Uganda Tel: +256-41-342788/342791 Fax: +256-41-342803 E-mail: [email protected] Website: www.cmauganda.co.ug

West African Economic and Monetary Union

2009 at a glance Benin Burkina Cote Guinea Mali Niger Senegal Togo Faso D’Ivoire Bissau Population (mn) 8.9 15.8 21.1 1.6 13.0 15.3 12.5 6.6 Population growth (annual %) 3.1 3.4 2.3 2.2 2.4 3.9 2.6 2.5 Official language French French French Portu- French French French French guese Currency CFA Franc (XOF) GDP (Current US$ bn) 6.5 8.6 21.6 0.4 8.4 5.5 13.1 2.9 GDP growth (annual %) 3.8 3.5 3.1 1.9 3.4 3.2 3.4 2.7 GDP per capita (Current US$) 729.4 542.7 1,023.0 264.1 647.1 358.3 1,046.2 441.3 Total Debt (US$ bn) 0.9 1.9 18.8 1.0 2.1 0.9 6.4 1.5 Total Debt/GDP (%) 14.9 21.9 82.7 245.3 25.4 15.9 48.9 50.5 CPI (annual %) 4.3 4.7 5.3 0.4 2.7 2.4 3.8 2.6 Exports of Goods and services (% of GDP) 16.6 9.2 41.7 32.3 27.5 16.9 20.5 37.0 Gross Official Reserves (in US$ bn) 1.1 0.9 2.2 0.1 0.9 0.7 1.4 0.5 Gross Official Reserves (in months of 7.3 5.5 3.5 5.2 3.9 3.6 3.1 5.7 imports) CFA/ 1 USD (year end) 457.75

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Summary

Benin »» The West African Economic and Monetary Union Fitch B B (WAEMU) comprises eight countries: Benin, Burkina Faso, Cote d’Ivoire, Guinea Bissau, Mali, Niger, Sen- Moody’s Not rated Not rated egal and Togo. S & P B B »» Member countries share a common currency, the Burkina Faso CFA Franc (XOF), a joint monetary policy and a Fitch Not rated Not rated Central Bank, the Central Bank of West African States (BCEAO). Moody’s Not rated Not rated »» The regional and national fixed income market is S & P B B still at a nascent stage. Senegal »» The Central Bank plays an important role as one of the main issuing entities in the region. Fitch Not rated Not rated »» In recent years, member countries started to finance Moody’s Not rated Not rated their public spending through the issuance of Treas- S & P B+ B+ ury bills instead of Central Bank loans. »» The number of corporate issues is still limited. Other Member Countries »» Similar to many other African countries, the investor Not rated by either Fitch, Moody’s or S&P base is dominated by commercial banks. Source: Bloomberg Bursa Athens Izmir GREECE Nicosia CYPRUS Crete

Tel Aviv-Ja a Jerusalem Alexandria Cairo

LIBYA EGYPT WESTERN ALGERIA Aswan SAHARA

MAURITANIA NIGER MALI SUDAN Timbuktu Agadez CHAD Omdurman Khartoum Dakar SENEGAL BURKINA Niamey Wad Madani al-Ubayyid FASO Bamako Bissau Ouagadougou GUINEA GUINEA NIGERIA BISSAU SIERRA GHANA LEONE COTE Abuja

TOGO CENTRAL D’IVOIRE Lome BENIN AFRICAN REPUBLIC Abidjan Porto CAMEROON LIBERIA Novo

EQUAT. GUINEA UGANDA CONGO Gulf of Guinea DEMOCRATIC REPUBLIC OF Kigali GABON RWANDA CONGO Bujumbura BURUNDI 180 West African Economic and Montary Union

Monetary Policy and Money Market

Monetary Policy The Central Bank’s main policy goal is price stability. The The BCEAO conducts open market and repo operations Central Bank of West African States (BCEAO) sets the to influence the money market reference rate, known as monetary policy for the Union and the individual member “Taux Moyen Mensuel” (TMM). This rate is calculated on states. The Bank focuses on keeping monetary and credit a monthly basis and is obtained through the weighted variables under control and in line with macroeconomic average of the marginal rates of weekly liquidity manage- objectives such as GDP growth, as well as public finances ment operations. and balance of payments stability. Money Market The Central Bank is currently undergoing an institutional There are several money market instruments available. reform process with the goal of adopting an explicit The list is extensive and includes Central Bank, Govern- inflation-targeting mandate. Additionally, the reform ment and regional bank issued Treasury bills and bonds, seeks to increase the independence of the Central Bank certificates of deposit and bonds issued by corporations, from the Governmental sphere of influence. amongst others. All these instruments can be used in repurchase operations between the BCEAO and other Policy decisions are taken by a Monetary Policy Committee, banking institutions. with policy actions taken when needed and communicated subsequently. The Central Bank also publishes a quarterly publication on monetary policy.

Fixed Income Market

Government Securities Participation at auction is restricted to primary dealers WAEMU Member states issue Treasury Bills with matu- who hold sufficient reserves in their depository accounts ritzies ranging from 7 to 720 days, namely: one week, 1 with the Central Bank. If reserves are insufficient, the month, 3 months, 6 months, 1 year and 2 years. These Central Bank will suspend participation until the reserve instruments are issued on the basis of a quarterly issu- amount has been increased. ance program and used to finance the short-term budget needs of member states. The vast majority of instruments are fixed rate, with a periodical amortization repayment profile. There are a Each individual country also issues longer-term instru- few bullet type repayment profiles in the market. The ments, namely Treasury bonds. These bonds collect funds standard day-count conventions are Act/365 for bonds dedicated to financing medium and long-term Government and Act/360 for the money market. expenditure. The issuance of Treasury bonds is set out in a program revised every year. The maturities range It is difficult to establish a yearly benchmark yield curve from 3 to 10 years.1 for individual countries, due to the limited number of securities on offer. The Central Bank conducts the auctions of bills on behalf of WAEMU members with a frequency of two to three Non-Government Securities auctions per week. Auctions of Treasury bonds take place The West African Development Bank is one of the main on a monthly basis. market players. There are also a few corporate issuers of note. The minimum investment size is XOF 1 million for Treas- ury bills and XOF 10,000 for Treasury bonds. Issuing prices are published in the press and on the Central Bank’s website.

1 3,5,6,7,8 and 10 years more precisely. West African Economic and Montary Union 181

Selection of West African Development Bank (BOAD) bond issuance in XOF Year Issuer Rating Nominal (in bn Coupon Coupon Fre- Maturity (year) Remarks XOF) quency 2009 BOAD N/R 46.35 3.26% Annual 2016 Listed on BRVM 2008 BOAD N/R 53.65 3.71% Annual 2015 Listed on BRVM 2008 BOAD N/R 22.50 5-5.5% Annual 2015 Listed on BRVM 2006 BOAD N/R 15.00 4.91% Annual 2013 Listed on BRVM 2004 BOAD N/R 17.30 5.35% Annual 2011 Listed on BRVM 2003 BOAD N/R 25.00 5.34% Annual 2010 Listed on BRVM 2003 BOAD N/R 20.00 5.48% Annual 2010 Listed on BRVM Source: BCEAO

Intermediaries Foreign investors can participate in the market through Primary subscription of Treasury bills and bonds is to local banks. some extent limited to banks, and national and regional financial institutions which have a depository account Primary Market with the Central Bank. Asset management and brokerage The Central Bank issues Treasury Bills on behalf of WAE- houses also have access to the primary market. MU member states. The West African Development Bank is the main non –Governmental issuer. There are also a Investors few corporate issuers of note. Commercial banks are the main investors of Treasury bills and bonds and have easy access to the primary issuances. Secondary Market All secondary market transactions must be conducted via The Central Bank does not purchase securities for its own certified intermediaries such as banks, non-bank financial books. Nonetheless, and subject to certain conditions, the institutions, regional financial institutions, asset managers Central Bank may act as the depositary of Treasury bills. and brokerage companies.

All investors have direct or indirect (via brokers and deal- Most investors adopt a buy-and-hold approach, which ers) access to the primary market. limits the development of an active secondary market.

Foreign Exchange Market

The CFA Franc (XOF) follows a fixed currency peg regime Foreign exchange controls do not apply to foreign investors against the Euro. The franc is not traded outside of the and there is no offshore XOF market. The graph below WAEMU, but is fully convertible against the Euro. The provides historical levels of the XOF against the USD parity is currently set at 655.957 XOF per 1 EUR. XOF per Unit of USD (Year End)

All WAEMU member states are compliant with IMF’s 600 article VII. As a result, the current account is fully lib- eralized. The capital account, on the other hand, is only partially liberalized. Capital flows are authorized except for resident-owned savings and investments in foreign 500 bank accounts. Gold exports are also restricted. All of these transactions require a prior authorization from the Ministry of Finance.

FX reserves are centralized through the BCEAO and held 400 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 in the Operations Account at the French Treasury. Source: Bloomberg 182 West African Economic and Montary Union

Derivatives Market

There is no derivatives market in the region.

Regulation and Taxation

Regulation Insurance companies are supervised by the Conference of Capital markets fall under the jurisdiction of the “Conseil Insurance Markets (CIMA), which is based in Cameroon Regional de l’Epargne Publique et des Marches” (CREPMF). and oversees insurance companies in all WAEMU states as well as other Central African countries. Auctions of Treasury bills and bonds are regulated by the Council of Ministers from WAEMU Taxation Interest on securities is taxable at 15%. Capitals gains are The Central Bank of West African States controls the also subject to tax. All member countries apply a with- Banking Commission which oversees banks and other holding tax between 6% and 13% on interest on bonds. financial institutions.

Clearing and Settlement

The “Dépositaire Central/Banque de Règlement” (DC/BR) cerned parties may extend the delivery by mutual agree- is the central clearing/delivery and settlement institution. ment.

The delivery versus payment system is fully automatic at Clearing and settlement in the secondary market is done the central clearer level. Each title has its own identifica- via the DC/BR, with no physical delivery required. tion code, the “Numero d’Identification Regional” (NIR). There are no ISIN codes. Settlement of transactions is The DC/BR has a special guarantee fund which may be conducted at the close of each trading day. used in the event of default by a financial institution. This mechanism will prevent systemic defaults and/or The minimum delivery period is T+1 for domestic trans- market panic. actions and T+3 for inter-country transactions. The con-

Regulatory Contacts West African Central Bank (BCEAO: West African Monetary Union – Banque Centrale des Etats de l’Afrique WAEMU/UEMOA de l’Ouest) Commission de l’UEMOA BP 3108 Dakar, Sénégal 01 BP 543 Ouagadougou 01 Burkina Faso Tel: (+221) 33 839 05 00 Tel: +226 50 31 88 73 Fax: (+221) 33 823 93 35 Fax: +226 50 31 88 72 Website: www.bceao.int Website: www.uemoa.int Zambia

2009 at a glance Population (mn) 12.9 TANZANIA Population growth (annual %) 2.5 Official language English DEMO. REP. OF CONGO

Currency Zambian Kwacha Lubumbashi (ZMK) ANGOLA

Kitwe Ndola

GDP (Current US$ bn) 11.5 MALAWI GDP growth (annual %) 4.0 Kabwe Lilongwe

GDP per capita (Current US$) 887.7 ZAMBIA Lusaka Blantyre Total Debt (US$ bn) 1.2 ZIMBABWE Total Debt/GDP (%) 10.0 Harare CPI (annual %) 10.0 BOTSWANA MOZAMBIQUE Exports of Goods and services (% of GDP) 27.9 Gross Official Reserves (in US$ bn) 1.2 Gross Official Reserves (in months of imports) 3.4 ZMK/ per 1 USD 4,641.00

Source: AfDB, Bloomberg

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» Government securities yield curve currently has tenors up to to 15 years, with issuance points at 91, 182, 273 and 364 days for Treasury bills and 2, 3, 5, 7, 10 and 15 years for Treasury bonds. »» The Government securities issuance calendar for both Treasury bills and bonds is published at the beginning of the calendar year showing auction dates. »» The Bank of Zambia is the Central Securities Depository (CSD) and settles all Government securities transactions. »» The size and liquidity of the secondary market is still a challenge as the secondary market remains underdeveloped. Weekly Repo transactions average ZMK 350 billion. The secondary market in long-term bonds is not very liquid. »» The fixed income market still faces the challenge of establishing benchmark bonds which will improve the pricing from the yield curve and enable the pricing from similar long-term instruments. »» Bloomberg codes for market data: • BOZMM01 / BOZMM02 / BOZMM03 / BOZMM02 / ZMK1= / ZMKF= / ZMK=/ ZATB= / ZAMGB 184 Zambia

Monetary Policy and Money Market Monetary Policy Money Market The Bank of Zambia (BOZ) has a principal monetary policy The most frequently used money market benchmark is objective of bringing the inflation rate down to 5% by the the Bank of Zambia rate. This is determined by adding end of 2009. The BOZ relies on market-based instruments, two percentage points to the 91-day Treasury bill. The specifically open market operations (OMO) and the sale interbank market is very liquid with most of the 16 com- of foreign exchange, to limit the growth in reserves and mercial banks frequently participating. broad money, The Central Bank is considering a transi- tion from reserve money targeting to interest-rate based monetary policy.

Fixed Income Market

Government Securities Government securities yield curve as at 30 June Zambia Treasury bills are issued by the Bank of Zambia 2007, 2008 and 2009

on behalf of the Government of Zambia. Tenors are 91-, Yields 182-, 273 and 364-day bills and auctions are held once 20% a week on Thursdays, with all tenors offered at each auction. The auction is a Dutch (multiple price) auction system and is open to individual and corporate investors with the exception of commercial banks. Settlement is 15% done on a T+4 cycle.

Zambia Government bonds are currently issued primarily

as fiscal policy instruments. Tenors issued are 2, 3, 5, 10 10% and 15 years. Auctions are monthly for the 2-, 3and 5-year 91 day 182 day 1 year 2 years 3 years 5 years 10 years 15 years Tenor bonds, and quarterly for the 7-, 10and 15-year bonds. All 30-Jun-09 30-Jun-08 30-Jun-07 tenors are often offered at a single auction. The auction is a Dutch (multiple price) auction system and is open to Source: Bank of Zambia individual and corporate investors with the exception of commercial banks. Settlement is done on a T+3 cycle. Non-Government Securities The Zambian corporate market has had limited activity in The opposite graph illustrates the trend in the Govern- the recent past. Barclays Bank of Zambia, Lafarge cement, ment securitites yield curve. Investrust Bank and Development Bank have issued notes under medium-term note programs, as listed in the table below. Liquidity in these bonds is very low.

Year of issue Issuer Coupon Tenor Kwacha 2003 Barclays Bank of Zambia 91TB+1.25% 11 years 50,000,000,000 2007 Development Bank 182TB+2.50% 5 years 68,620,000,000 2007 Investrust Bank 182TB+2.50%&3.50% 3&5 years 30,310,000,000 2007 Lafarge Cement 182TB+1.25% 5 years 108,000,000,000 Source: Lusaka Stock Exchange

Zambia 185

Intermediaries participate indirectly through fund managers. Currently, All trades in Government securities must be executed holdings by insurance companies that participate directly through the Lusaka Stock Exchange (LuSE). The brokers are less than 1% of total holdings. therefore have a role to play in matching and processing transactions at the Exchange. There are no designated There are four asset and fund managers who participate market makers and most of the dealing is done over- in the securities market directly, with less than 1% of total the-counter. There are four brokers that deal with fixed outstanding Government securities. income securities at the Lusaka Stock Exchange. There are no restrictions on participation of foreign in- Investors vestors in the Zambian debt markets. Foreign investors The Zambian market is growing in diversity with well- participate in the debt market through their local regis- distributed holdings of Government securities amongst tered banks, and securities are held by their nominated all categories of holders, including foreign investors, as custodians. Currently, Barclays Bank Lusaka Nominee illustrated in the chart below. International holds most of the securities for foreign investors. Foreign investors can also purchase securities Holdings by category of investors as at June 30, through brokers at the Lusaka Stock exchange. They have 2009 (in percent) tended to invest in shorter-term instruments ranging from 91 day to 3 year maturities.

Foreign Investors, 5.20% Other, Retail investors access the market directly as competitive 11.40% Central Bank, 19.36% or non-competitive bidders. The minimum bid amount for competitive bidders is ZMK 30 million and ZMK 1 million for non-competitive bids. All retail investors who Commercial Banks, Pension Funds, bid on a competitive basis have CSD accounts while non- 38.79% 30.20% competitive bidders have sub-accounts.

Primary Market The primary market for Government securities is open to all applicants that have accounts with the central deposi- Insurance Companies, 0.25% tory at the Central Bank of Zambia. Applicants without clearing accounts at the Bank of Zambia must accompany Source: Bank of Zambia bids with a guarantee by the settlement bank. The mini- mum bid amount is ZMK 30 million,with multiples of ZMK The Zambian banking sector consists of 18 licensed and 5 million thereafter. As of June 2009, total outstanding 16 operational commercial banks as of September 2009, Treasury bills and bonds issuances amounted to ZMK including several foreign-controlled banks. The banking 8,389 billion. A handling fee of 2% is currently charged by sector held approximately 39% of outstanding Government the Central Bank for primary market bond transactions. securities as of 30 June 2009. These holdings comprised mostly Treasury bills and bonds up to 3 years maturity. Secondary Market A turnover of ZMK 13.7 trillion was recorded in 2008, There are over 240 pension funds in the market, with which is a turnover ratio of 1.6, a significant improvement the dominant fund being the National Pension Scheme on the ratio of 1.3 recorded for 2007. In 2008, the average Authority, however, very few participate directly in the volume traded per day was ZMK 54 billion, 25% higher securities market. The smaller pension funds participate than the previous year. Liquidity has been concentrated indirectly through fund managers. By the end of 2009, at the short 91-day to 3-year section of the curve. The pension funds held 24.4 % of the total Government se- average size of a trade was ZMK 5.4 billion in 2008. curities holdings.

The participation of insurance companies is not signifi- cant. There are a few insurance companies that invest in Government securities directly, while most of them 186 Zambia

Trend in secondary market trading of Government securities

Amount in Kwacha (Trillions) 15

12

9

6

3

0 2004 2005 2006 2007 2008 as of June 30, 2009 Year

Source: Bank of Zambia

Foreign Exchange Market

Zambia’s foreign exchange market was fully liberalized ZMK per Unit of USD (Year End)

in 1994 following the removal of restrictions on both the 5,000 current and capital accounts. The general public can both buy and sell foreign exchange to commercial banks and bureaux de change. Interventions in the foreign exchange market by the Bank of Zambia are primarily aimed at smoothing out short-term fluctuations in the market and 4,000 meeting the targets of international reserves.

The main market is the spot market for ZMK/USD; the forward market is short-term, but is developing. The 3,000 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 market is also available for ZMK/EUR and ZMK/GBP. Source: Bloomberg The opposite graph provides historical levels of the ZMK against the USD.

Derivatives Market

There are a few derivative contracts in foreign exchange which are mostly short-term, with tenors not exceeding 12 months.

Regulation and Taxation

Regulation the corporate bond market and trades of the Govern- The issuance of corporate bonds has to be approved by ment bond market. One of the central purposes of the the Securities and Exchange Commission. The Lusaka Bank of Zambia is to regulate commercial banks, leasing Stock Exchange (LuSE) regulates the listed securities of companies, building companies, development banks, Zambia 187 savings and credit institutions, credit reference bureaus, Taxation bureaux de change and microfinance institutions. Pension Under the current legislation, the income earned on funds and insurance companies are regulated by the Pen- Treasury bills and Government bonds is subject to 15% sion and Insurance Authority while securities firms and withholding tax. The taxes are deducted at source upon venture capital funds are regulated by the Securities and maturity of the security. There is no capital gains tax on Exchange Commission. fixed income investments. Non-residents whose countries have signed double taxation agreements are eligible to claim their tax paid with the Zambia Revenue Authority.

Clearing and Settlement

The Zambian Inter-Bank Payment and Settlement System electronic depository facility or Central Share Depository (ZIPSS) is an system that facilitates efficient transfer of (CSD) known as the Zambia Central Depository. Investors funds between banks. The LuSE operates an electronic intending to transact in listed securities, are required to clearing and settlement process, with trade-for-trade trade through the LuSE. The CSD for Government securi- netting and settlement on T+3. The trades are carried ties is with the Bank of Zambia and efforts have been made out through stock brokers. The LuSE also operates an to link the CSD at the Exchange with the Central Bank.

Regulatory Contacts Bank of Zambia Securities and Exchange Commission P.O. Box 30080, Lusaka, Zambia P.O. Box 35165, Cairo Road, Lusaka, Zambia Bank Square 5th Floor, Bank of Zambia Annex, Lusaka, Zambia Tel: Cairo Road Lusaka, Zambia 260-1-226911 Tel: 260-1-228.888/ 228.903-20 Fax: 260-1-225443 Fax: 260-1-221722/237070 E-mail: [email protected] Website: www.boz.zm

Lusaka Stock Exchange P.O. Box 34523, Lusaka, Zambia 3rd Floor Farmers House Building, Cairo Road, Lusaka, Zambia Tel: 260-1-228391/228537/228594 Fax: 260-1-225969 E-mail: [email protected] Website: www.luse.co.zm

Zimbabwe

2009 at a glance ANGOLA R.D. DU CONGO Population (mn) 12.5 D.R. OF CONGO

Population growth (annual %) 0.5 ZAMBIA Lilongwe Official language English MALAWI Lusaka Blantyre Currency Multi-currency system: ZAR reference and Chinhoyi USD main transacting NAMIBIE Harare currency Marondera Mutare GDP (Current US$ bn) 3.5 ZIMBABWE Bulawayo Masvingo GDP growth (annual %) 3.7

GDP per capita (Current US$) 284.0 BOTSWANA MOZAMBIQUE Total Debt (US$ bn) 6.6 Pietersburg Total Debt/GDP (%) 186.9 Inhambane

Gaborone OCEAN INDIEN SOUTH AFRICA INDIAN OCEAN CPI (annual %) 9.0 Exports of Goods and services (% of GDP) 50.9 Gross Official Reserves (in US$ bn) N/A Gross Official Reserves (in months of imports) N/A

Source: AfDB

Sovereign rating as at March 24, 2010 Long-term Local Currency Foreign Currency Not rated by either Fitch, Moody’s or S&P

Source: Bloomberg

Summary

»» There are no fixed income Government securities in Zimbabwe. »» The Zimbabwe Dollar is not functional as it was suspended in April 2009. In February 2009 a multi- currency system was adopted, with the South African Rand as the reference currency and the US Dollar as the main transaction currency. 190 Zimbabwe

Monetary Policy and Money Market

With the adoption of dollarization, the Reserve Bank of cal constraints that come with dollarization, the threat of Zimbabwe’s (RBZ) control over monetary policy was cur- hyperinflation that has plagued the country is eliminated. tailed. The multi-currency system, which the authorities have decided to maintain until 2012, will provide the very The focus has turned away from controlling inflation to foundation of Zimbabwe’s Monetary Policy . Given the fis- attracting private and public capital to Zimbabwe.

Overview of Financial Sector

As of 31 December 2009, the banking system in Zimba- The balance sheets of all the banks suffered during the bwe comprised 27 institutions: 17 commercial banks, 4 hyperinflationary period. Following the adoption of the merchant banks, 4 building companies, 1 discount house multi-currency regime, the RBZ introduced a phased im- and 1 savings bank. There were also 16 licensed asset plementation plan for banking institutions to recapitalize management companies and 95 microfinance institutions their balance sheets in order to fully meet new prudential operating under the supervision of the Central Bank. requirements by 31 March 2010. Banks reportedly hedged the inflation risk through investment in real assets.

Regulation

The Securities Exchange Commission of Zimbabwe has banking sector and is spearheading efforts to recapitalize the overall responsibility of regulating the capital markets. the sector. The Reserve Bank of Zimbabwe is the regulator of the

Regulatory Contacts Reserve Bank of Zimbabwe P.O. Box1283, Harare, Zimbabwe 80 Samora Machel Avenue, Harare, Zimbabwe Tel: +263-4-703000 Fax: +263-4-707800, 706450 E-mail: [email protected] Website: www.rbz.co.zw Glossary

Bond A bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon). Other stipulations may also be attached to the bond issue, such as the obligation for the issuer to provide certain information to the bond holder, or limita- tions on the behavior of the issuer. Bonds are generally issued for a fixed term (the maturity) longer than one year.

Callable Bond A bond that can be redeemed at the option of the issuer prior to maturity as the issuer has the right to “cawll” the bond at fixed prices and call dates. Maturities may be extended (“extendible) or shortened (“retractable”).

Capital Market The market in which corporate equity and longer-term debt securities (those maturing in more than one year) are issued and traded.

Clearing The process of exchanging financial transaction details between an acquirer and an issuer to facili- tate settlement.

Convertible Bond These may be converted into the issuer’s common stock or into equity-like instruments.

Crawling Peg An exchange rate adjustment method in which the value a fixed exchange rate is allowed to fluc- Exchange Rate tuate within a certain range of values. A crawling peg allows the exchange rate to adjust over time, hence "crawl," rather than be adjusted by a sudden or dramatic change.

Currency Board Fixed exchange rate system. Requires maintenance of a specific exchange rate in respect to an- Exchange Rate System other currency.

Delivery Verses The delivery of securities in exchange for another asset, usually money. Payment (DVP)

Dematerialized Securities that are no longer held in physical certificates and have been converted to an all-elec- Securities tronic system of bookkeeping.

Depository A centralized clearing house and repository for securities. A location where securities are actually stored and where the electronic day-to-day movements of those securities is recorded.

Derivative A financial contract from which payoffs over time are derived from the performance of assets (such as commodities, shares or bonds), interest rates, exchange rates, or indices (such as a stock market index, consumer price index (CPI) or an index of weather conditions). The main types of derivatives are futures, forwards, options and swaps.

Discount House A firm that buys securities (commercial paper, discounted bills of exchange, Treasury bills and bonds from willing sellers.

Discount Rate In relation to Central Bank Monetary Policy, is the rate at which specific banks may borrow short- term funds directly from the Central Bank.

Dutch Auction System A public offering auction structure in which the price of the offering is set after taking in all bids and determining the highest price at which the total offering can be sold.

Electronic Book-entry See Dematerialized Securities

Exchange Control Restrictions on conversion of a country's currency for another.

Fiscal Policy Government's revenue (taxation) and spending policy. Glossary 193

Fixed Income Debt instruments of companies, government or agencies characterized by a fixed interest rate and stated maturity date.

Flexible Exchange Rate Currency exchange rate which is determined by free market forces. Also known as floating ex- System change rate system.

Floating Rate Note Bonds for which the coupons are a reference rate plus a spread/margin. This rate is reset on a (FRN) regular basis and generally constitutes a short-term benchmark rate such as a Treasury bill rate or LIBOR.

Forward Contract A contract on which a seller agrees to deliver a specified cash commodity to a buyer sometime in the future. In contrast to futures contracts, the terms of forward contracts are not standardized. Forward contracts are not traded on exchanges.

Forward Rate An agreement to borrow or lend at a specified future date at an interest rate that is fixed today. Agreement The borrowing and lending is purely notional as the contract allows the purchaser to fix interest costs for a specific future period.

Futures Contract An agreement to buy or sell a fixed quantity of a specified commodity, currency or security for delivery at a fixed date in the future at a fixed price. Futures contracts are standardized agreements traded on Futures Exchanges.

Indexed Bond These are bonds indexed/ linked to non-market indices or assets. Examples include inflation- indexed bonds whose coupons are linked to various inflation indices such as the consumer price index and wholesale price index. Commodity-linked bonds are linked to the value of commodities such as agriculture, petroleum and minerals.

Inter-dealer Broker A brokerage firm operating in the bond or OTC derivatives market that acts as an intermediary between major dealers to facilitate inter-dealer trades.

Liquidity The ease with which an asset can be quickly converted into cash without any significant move- ments in the price. A market is considered liquid if there are ready buyers and sellers of securities in large quantities.

Managed Float Floating currency exchange rate system which is not controlled entirely by the market forces of Exchange Rate System demand and supply but is partially controlled by government intervention that limits appreciation or depreciation of the currency within a range.

Margin In relation to securities trading, is the difference between the face value of a loan for security pur- chase and the current value of securities deposited as collateral.

Monetary Policy The regulation of money supply and interest rates by a Central Bank in order to control, aggregate demand and, by extension, inflation in the economy.

Money market The market for short-term debt instruments maturing in one year or less. Examples of money market instruments include Treasury bills, commercial paper, and certificate of deposits.

Mudaraba An arrangement where one party provides the funds and the other provides expertise and man- agement.

Multiple-price Auction Investors making competitive bids specify the rate or yield they are willing to receive for the use of their funds. Successful competitive bidders pay the price equivalent to the rate or yield they bid.

Murabaha A particular kind of sale or contract that is compliant with Islamic law.

Musharaka Similar to conventional partnership with profit and loss sharing.

Mutual Funds A scheme operated by an investment company which raises money and invests in securities in accordance to a specific objective. 194 Glossary

Open Market Buying and selling of securities by the monetary authority to influence the money supply. Operations

Option The right (but not the obligation) to buy or sell securities at a given price (exercise or strike price) before a given date (expiry date).

Over-The-Counter Trades that are not executed on a Securities/Stock Exchange. (OTC)

Pegged Exchange Rate System where the value of a country’s currency, in relation to another currency is fixed at a specific conversion rate.

Primary Dealer A designation usually given by an issuer of securities or the agent to banks, broker/dealers or other financial institutions that meet specific criteria like capital requirement, liquidity and primary market participation.

Primary Market The market for new securities issues from the issuer.

Real-Time Gross A system where transactions between financial institutions is done electronically. Funds are im- Settlement System mediately credited to one institution from another. (RTGS)

Repo A contract where a seller of securities agrees to buy them back at a specified time and price. Also referred to as Repurchase Agreements or buyback.

Reserve Requirement Amount of money and liquid assets that deposit money banks must hold in cash or on deposit with the Central Bank, usually a specified percentage of their demand deposits and time deposits. Also called reserve ratio.

Secondary Market A market where an investor purchases a security from another investor and not the original issuer after the original issuance in the primary market.

Securitization Conversion of assets (typically loans and other receivables) into securities usually to sell them on to other investors.

Settlement Conclusion of a securities transaction when a customer pays a broker/dealer for securities pur- chased or delivers securities sold and receives from the broker the proceeds of a sale.

Spot transaction A transaction requiring immediate delivery and full payment.

Structured Investment A type of fund which invests in long term, high-yield securities with money that it raises by sell- Vehicle (SIV) ing short-term securities of lower yield and profits from the difference in rates.

Sukuk Instruments/securities that comply with Islamic law (Shariah).

Swap An agreement between parties to exchange future cash flows that are determined by an underly- ing such as currency, interest rate, equity and commodity.

T + 1 ( 2, 3, 4) Refers to settlement of securities from the trade/ transaction date T +1 means settlement is one day after the trade date; T+ 2 is two days after the trade date and so on.

Treasury Bill A negotiable debt obligation issued by government and backed by its full faith and credit, having a maturity of one year or less.

Treasury Bond A long-term government obligation having a maturity of more than one year.

Umbrella Fund Mutual fund that primarily invests in other funds. Also referred to as fund of funds.

Yield to Maturity The rate of return anticipated on a bond if it is held until the maturity date. YTM is considered a long-term bond yield expressed as an annual rate. The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity. It is also assumed that all coupons are reinvested at the same rate. Sometimes this is simply referred to as "yield" for short. Disclaimer 195

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